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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2023
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 001-37381
Xylo Technologies Ltd.
(Exact name of Registrant as specified in its charter)
Israel
(Jurisdiction of incorporation or organization)
10 Hanechoshet, Tel-Aviv 6971072, Israel
(Address of principal executive offices)
Tali Dinar
10 Hanechoshet, Tel-Aviv 6971072, Israel Tel: +972-3-689-9124
Fax: +972-8-853-8194
(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:
| Title of class | Trading Symbol(s) | Name of each exchange on which registered | ||
| American Depositary Shares, each representing fifteen (15) Ordinary Shares(1) | XYLO | Nasdaq Capital Market | ||
| Ordinary Shares, no-par value (2) |
| (1) | Evidenced by American Depositary Receipts. |
| (2) | Not for trading, but only in connection with the registration of the American Depositary Shares. |
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 December 31, 2023: 27,989,465 Ordinary Shares, no par value per share.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act:
Yes ☐ No ☒
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934:
Yes ☐ No ☒
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
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 “accelerated filer and large accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large Accelerated filer | ☐ | Accelerated filer | ☐ | Non-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. ☐
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 the basis of accounting the registrant has used to prepare the financial statements included in this filing:
| ☐ | U.S. GAAP |
| ☒ | International Financial Reporting Standards as issued by the International Accounting Standards Board |
| ☐ | Other |
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):
Yes ☐ No ☒
TABLE OF CONTENTS
INTRODUCTION
Certain Definitions
In this annual report, unless the context otherwise requires:
| ● | references to “ADS” refer to American Depositary Shares, each representing fifteen (15) Ordinary Shares. | |
| ● | references to the “Companies Law” refer to the Israeli Companies Law, 5759-1999, as amended. | |
| ● | references to “endoscopy” refer to a medical procedure which is used to diagnose or treat various diseases using an endoscope (a flexible tube which contains lighting features, imaging features and a system used to direct the endoscope within bodily systems). | |
| ● | references to “Fuel Doctor” refer to Fuel Doctor Holdings, Inc., a company incorporated under the laws of the State of Delaware, a majority owned subsidiary of the Company. | |
| ● | references to “Eventer” refer to Eventer Technologies Ltd., a company incorporated under the laws of the State of Israel, a majority subsidiary of the Company. | |
| ● | references to “GERD IP” refer to GERD IP, Inc., a corporation incorporated under the laws of the State of Delaware, a majority owned subsidiary of the Company | |
| ● | references to “Gix Internet” refer to Gix Internet Ltd. (formerly known as Algomizer Ltd.), a public company incorporated under the laws of the State of Israel, a subsidiary of the Company. | |
| ● | references to “Group” refer to the Company and its consolidated subsidiaries, which are Jeffs’ Brands, Fuel Doctor, GERD IP, Gix Internet and Eventer. | |
| ● | references to “Jeffs’ Brands” refer to Jeffs’ Brands Ltd., a company incorporated under the laws of the State of Israel. | |
| ● | references to “Xylo Technologies,” the “Company,” the “Registrant,” “us,” “we” and “our” refer to Xylo Technologies Ltd. (formerly known as Medigus Ltd.), an Israeli company. | |
| ● | references to “MUSE™” refer to the Medigus Ultrasonic Surgical Endostapler, the trade name of an endoscopy system developed by the Company which is intended as a minimally invasive treatment for Gastroesophageal Reflux Disease, or GERD. | |
| ● | references to “NIS” refer to New Israeli Shekels, the Israeli currency. | |
| ● | references to “Ordinary Shares,” “our shares” and similar expressions refer to the Company’s Ordinary Shares, of no par value per share. | |
| ● | references to “Polyrizon” refer to Polyrizon Ltd., a company incorporated under the laws of the State of Israel, a minority owned entity of the Company. | |
| ● | references to “Pro” refer to Smart Repair Pro, Inc., a corporation incorporated under the laws of the State of California. | |
| ● | references to the “SEC” refer to the United States Securities and Exchange Commission. | |
| ● | references to “Odysight.ai” (formerly known as “ScoutCam Inc.”) refer to Odysight.ai Inc., a company incorporated under the laws of State of Nevada, a previously minority owned subsidiary of the Company. |
On April 1, 2024, we changed our name from “Medigus Ltd.” to “Xylo Technologies Ltd.” and therefore all such references in this Annual Report have been changed to reflect our new name. Additionally, in connection with the name change, on April 18, 2024, we changed our trading symbol with Nasdaq from “MDGS” to “XYLO.”
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND A SUMMARY OF RISK FACTORS
Certain information included or incorporated by reference in this annual report on Form 20-F may be deemed to be “forward-looking statements”. Forward-looking statements are often characterized by the use of forward-looking terminology such as “may,” “will,” “expect,” “anticipate,” “estimate,” “continue,” “believe,” “should,” “intend,” “project” or other similar words, but are not the only way these statements are identified.
These forward-looking statements may include, but are not limited to, statements relating to our objectives, plans and strategies, statements that contain projections of results of operations or of financial condition, statements relating to the research, development and use of our products, and all statements (other than statements of historical facts) that address activities, events or developments that we intend, expect, project, believe or anticipate will or may occur in the future.
Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties. We have based these forward-looking statements on assumptions and assessments made by our management in light of their experience and their perception of historical trends, current conditions, expected future developments and other factors they believe to be appropriate.
Important factors that could cause actual results, developments and business decisions to differ materially from those anticipated in these forward-looking statements include, among other things:
| ● | recent material changes in our strategy; | |
| ● | we have a history of operating losses, we may incur additional losses in the future and our ability to grow sales and achieve profitability are unpredictable; |
| ● | we will need additional funding. If we are unable to raise capital, we will be forced to reduce or eliminate our operations; |
| ● | the overall global economic and macroeconomic environment; |
| ● | our ability to freely operate our business; |
| ● | certain of our subsidiaries’ dependencies on key employees; |
| ● | changing laws, regulations, standards and contractual obligations related to privacy, data protection and data security and our and our subsidiaries’ ability to comply with them; |
| ● | Gix Internet’s performance; |
| ● | Eventer’s commercial success; |
| ● | conditions in Israel, including the ongoing war between Israel and Hamas, and other conflicts in the region; |
| ● | our ability to sell or license our MUSE™ technology; |
| ● | our ability to secure and maintain intellectual property protections; | |
| ● | patent and other intellectual property litigation that could be costly, result in the diversion of management’s attention, require us to pay damages and force us to discontinue selling our products; | |
| ● | disruptions to the Group’s information technology systems due to cyber-attacks or the Group’s failure to upgrade and adjust our information technology systems, may materially impair the Group’s operations, hinder our growth and materially and adversely affect our business and results of operations; | |
| ● | regulatory reforms may adversely affect our ability to sell our products profitably; | |
| ● | if we fail to comply with the extensive government regulations relating to our business, we may be subject to fines, injunctions and other penalties that could harm our business; | |
| ● | raising additional capital by issuing securities may cause dilution to existing shareholders; |
| ● | increased attention to, and evolving expectations for, environmental, social, and governance (ESG) initiatives could adversely impact our business; |
| ● | those factors referred to in “Item 3. Key Information – D. Risk Factors,” “Item 4. Information on the Company,” and “Item 5. Operating and Financial Review and Prospects”, as well as in this annual report on Form 20-F generally. |
Readers are urged to carefully review and consider the various disclosures made throughout this annual report on Form 20-F, which are designed to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.
In addition, the section of this Annual Report on Form 20-F entitled “Item 4. Information on the Company” contains information obtained from independent industry and other sources that we have not independently verified. You should not put undue reliance on any forward-looking statements. The forward-looking statements made in this Annual Report relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Annual Report to reflect events or circumstances after the date of this Annual Report or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments.
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY INFORMATION
A. [Reserved]
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
You should carefully consider the risks described below, together with all of the other information in this annual report on Form 20-F. The risks described below are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business operations. If any of these risks actually occurs, our business and financial condition could suffer, and the price of our shares could decline.
Risks Related to Our Business
Starting in 2019, we made material changes to our business strategy. We cannot guarantee that any of these changes will result in any value to our shareholders.
Since 2019, we have materially changed our business model, adjusted our exclusive focus on the medical device industry to include other industries, abandoned our strategy to commercialize the MUSE™ system, sold our holdings in Odysight.ai. and diversified our investments into new markets and industries. In addition to the medical field, we entered the electric vehicle field. We also invested in different internet-related markets, specifically e-commerce and online advertising. Additionally, we have begun investing in real estate. As a result of these changes, we have acquired substantial stakes in a number of ventures, including but not limited to online business activities such as ad-tech, e-commerce, drone technology and online event management. We cannot guarantee that these strategic decisions will derive the anticipated value to our shareholders, or any value at all.
We have a history of operating losses, we may incur additional losses in the future and our ability to grow sales and achieve profitability is unpredictable.
As of December 31, 2023, we had an accumulated deficit of $101.6 million and incurred total operating loss of approximately $23.3 million in the year ended on December 31, 2023, and total operating losses of approximately $13.8 million in the year ended December 31, 2022. Our losses have had, and will continue to have, an adverse effect on our shareholders’ equity and working capital. Any failure to achieve and maintain profitability would continue to have an adverse effect on our shareholders’ equity and working capital and could result in a decline in our share price or cause us to cease operations.
Our ability to reach profitability depends on many factors, which include:
| ● | successfully implementing our business strategy; |
| ● | increasing revenues; and |
| ● | controlling costs. |
There can be no assurance that we will be able to successfully implement our business plan, meet our challenges and become profitable in the future.
We will need additional funding. If we are unable to raise capital, we will be forced to reduce or eliminate our operations.
During the year ended December 31, 2023, the Group incurred loss of $21.7 million mainly due to operating loss from our consolidated financial reports of approximately $23.3 million and a negative cash flow from operating activities of approximately $6.2 million. Furthermore, in recent years, the Group has suffered recurring losses from operations, negative cash flows from operating activities and has an accumulated deficit of $101.6 million as of December 31, 2023.
As of December 31, 2023, we had a total cash and cash equivalents balance and short term deposits of approximately $9.4 million. Our management expects that we will continue to generate operating losses. Our management plans to continue to fund its operations primarily through utilization of its financial resources. In addition, we may raise additional capital or realize some of our investments in other entities in order to fund our operating needs. Our management is of the opinion that based on our current operating plan it will be able to carry out its plan for more than a year after the issuance date of this Annual Report on Form 20-F. However, we anticipate that we are likely to continue to incur significant losses for at least the next year. There is no assurance however, that we will be successful in obtaining the level of financing needed for our operations. If we are unable to obtain additional sufficient financing our business and results of operations will be materially harmed.
Even if we are able to continue to finance our business, the sale of additional equity or debt securities could result in dilution to our current shareholders and could require us to grant a security interest in our assets. If we raise additional funds through the issuance of debt securities, these securities may have rights senior to those of our Ordinary Shares and could contain covenants that could restrict our operations. In addition, we may require additional capital beyond our currently forecasted amounts to achieve profitability. Any such required additional capital may not be available on reasonable terms, or at all.
Global economic and macroeconomic conditions may adversely affect our operating results in a material manner.
Our operating businesses are subject to normal economic cycles affecting the general economy or the specific industries in which they operate. Negative conditions in the general economy, including significant inflation, rising interest rates, financial and credit market fluctuations, international trade relations, political turmoil, geopolitical conflicts such as the military conflict between Russia and Ukraine, natural catastrophes, regional or global outbreaks of contagious diseases, warfare and terrorist attacks, could cause a decrease in business investments and could produce a material adverse effect on one or more of our subsidiaries. Extreme volatility in financial markets, has adversely impacted and may continue to adversely impact our share price and our ability to access capital markets. To the extent that access to the capital markets is restricted or the cost of funding increases, our operations could be adversely affected.
Certain of our subsidiaries rely on key employees and highly skilled personnel, and, if they are unable to attract, retain or motivate qualified personnel, they may not be able to operate their business effectively.
The success of certain of our subsidiaries depends largely on the continued employment of their senior management and key personnel who can effectively operate its business and its ability to attract and retain skilled employees. Competition for highly skilled management, technical, research and development, and other employees is intense, and our subsidiaries may not be able to attract or retain highly qualified personnel in the future. If any of the key employees of these subsidiaries leave or are terminated, and such companies fail to manage a transition to new personnel effectively, or if they fail to attract and retain qualified and experienced professionals on acceptable terms, the business, financial condition and results of operations of these subsidiaries could be adversely affected.
We, and our subsidiaries, are subject to stringent and changing laws, regulations, standards, and contractual obligations related to privacy, data protection, and data security. The actual or perceived failure to comply with such obligations could harm our business.
Our subsidiaries and we receive, collect, store, process, transfer, and use personal information and other data relating to users of our products, our employees and contractors, and other persons. We have legal and contractual obligations regarding the protection of confidentiality and appropriate use of certain data, including personal information. We are subject to numerous federal, state, local, and international laws, directives, and regulations regarding privacy, data protection, and data security and the collection, storing, sharing, use, processing, transfer, disclosure, and protection of personal information and other data, the scope of which are changing, subject to differing interpretations, and may be inconsistent among jurisdictions or conflict with other legal and regulatory requirements. We are also subject to certain contractual obligations to third parties related to privacy, data protection and data security. We strive to comply with our applicable policies and applicable laws, regulations, contractual obligations, and other legal obligations relating to privacy, data protection, and data security to the extent possible. However, the regulatory framework for privacy, data protection and data security worldwide is, and is likely to remain for the foreseeable future, uncertain and complex, and it is possible that these or other actual or alleged obligations may be interpreted and applied in a manner that we do not anticipate or that is inconsistent from one jurisdiction to another and may conflict with other legal obligations or our practices. Further, any significant change to applicable laws, regulations or industry practices regarding the collection, use, retention, security or disclosure of data, or their interpretation, or any changes regarding the manner in which the consent of users or other data subjects for the collection, use, retention or disclosure of such data must be obtained, could increase our costs and require us to modify our services and features, possibly in a material manner, which we may be unable to complete, and may limit our ability to store and process user data or develop new services and features.
If our subsidiaries or we were found in violation of any applicable laws or regulations relating to privacy, data protection, or security, our business may be materially and adversely affected, and we would likely have to change our business practices and potentially the services and features available through our platform. In addition, these laws and regulations could impose significant costs on us and could constrain our ability to use and process data in manners that may be commercially desirable. In addition, if a breach of data security were to occur or to be alleged to have occurred, if any violation of laws and regulations relating to privacy, data protection or data security were to be alleged, or if we had any actual or alleged defect in our safeguards or practices relating to privacy, data protection, or data security, our solutions may be perceived as less desirable, and our business, prospects, financial condition, and results of operations could be materially and adversely affected.
We also expect that there will continue to be new laws, regulations, and industry standards concerning privacy, data protection, and information security proposed and enacted in various jurisdictions. For example, the data protection landscape in the European Union (“EU”) is currently evolving, resulting in possible significant operational costs for internal compliance and risks to our business. The EU adopted the General Data Protection Regulation or GDPR, which became effective in May 2018, and contains numerous requirements and changes from previously existing EU laws, including more robust obligations on data processors and heavier documentation requirements for data protection compliance programs by companies. Among other requirements, the GDPR regulates the transfer of personal data subject to the GDPR to third countries that have not been found to provide adequate protection to such personal data, including the United States.
In addition to the GDPR, the European Commission has another draft regulation in the approval process that focuses on a person’s right to conduct a private life. The proposed legislation, known as the Regulation of Privacy and Electronic Communications, or ePrivacy Regulation, would replace the current ePrivacy Directive. Originally planned to be adopted and implemented at the same time as the GDPR, the ePrivacy Regulation is still being negotiated. Although it remains under debate, the proposed ePrivacy Regulation may further raise the bar for the use of cookies, and the fines and penalties for breach may be significant and could affect our services, business and revenues. We cannot yet determine the impact such future laws, regulations and standards may have on our business.
In addition, the U.K.’s General Data Protection Regulation (the “UK GDPR”), imposes robust obligations for the collection, control, use, sharing, disclosure and other processing of personal data and contains documentation and accountability requirements for data protection compliance. The UK GDPR exposes us to two parallel regimes (GDPR and UK GDPR), each of which authorizes similar fines and may subject us to increased compliance risk based on differing, and potentially inconsistent or conflicting interpretation and enforcement by regulators and authorities (particularly, if the laws are amended in the future in divergent ways). Failure to comply with these obligations can result in significant fines and other liability under applicable law. In particular, under the GDPR, fines of up to EUR 20 million (or GBP 17.5 million under the UK GDPR) or up to 4% of the annual global revenue of the noncompliant company, whichever is greater, could be imposed for violations of certain of the GDPR’s requirements. The GDPR requirements apply not only to third-party transactions, but also to transfers of data between us and our subsidiaries, including employee data. Because our services are accessible worldwide, certain foreign jurisdictions may claim that we are required to comply with their laws, including in jurisdictions where we have no local entity, employees or infrastructure.
On November 1, 2022, the Digital Markets Act, (the “DMA”), entered into force and on November 16, 2022, the Digital Services Act (the “DSA”), followed. For the DSA, most provisions became applicable on February 17, 2024. The DSA and the DMA focus on creating a safer digital space, protecting fundamental rights of all users of digital services, and establishing a level playing field for businesses and consumers with regards to online platforms. As further guidance is issued and interpretation of both the DSA and the DMA evolves, it is difficult to assess the impact of the DSA and DMA on our and our subsidiaries’ business or operations, but, to the extent applicable, it may require us to modify our practices and policies and we could incur substantial costs as a result.
Additionally, legal developments in Europe in recent years, have created complexity and uncertainty regarding transfers of personal data from the EEA to the United States. On June 27, 2021, the European Commission published a new set of modular standard contractual clauses (the “New SCCs”). The New SCCs must be used for all relevant transfers of personal data outside the EEA (since December 27, 2022) and organizations must ensure that all new and existing contracts involving the transfer of personal data outside the EEA contain New SCCs and, for transfers out of the UK, the International Data Transfer Agreement (“IDTA”) or the UK Addendum to the New SCCs. In addition to the use of a valid data transfer mechanism, transfer impact assessments must be carried out in respect of planned transfers of personal data from the EEA/UK to third countries including the U.S., and failure to do so may expose us to further compliance risk. The Court of Justice of the European Union (“CJEU”) decision also cast doubt over the effectiveness of the SCCs. The European Data Protection Board, which subsequently issued a revised set of SCCs for organizations to utilize, released their comments on the supplementary measures that can be used to ensure a sufficient level of data protection when transferring personal data. The comments indicated that organizations need to perform a data transfer impact assessment to evaluate the legal regime applicable in the destination country, in particular applicable surveillance laws and rights of individuals, and that additional measures and/or contractual provisions may need to be put in place. However, the nature of these additional measures is currently uncertain. Additionally, recent legal developments in EU have created complexity and uncertainty regarding transfers of personal data from the EEA to the United States and other non-adequate jurisdictions. The EU-U.S. Data Privacy Framework (EU-U.S. DPF), the UK Extension to the EU-U.S. Data Privacy Framework (UK Extension to the EU-U.S. DPF), and the Swiss-U.S. Data Privacy Framework (Swiss-U.S. DPF) were developed to facilitate transatlantic commerce by providing U.S. organizations with reliable mechanisms for personal data transfers to the United States from the European Union / European Economic Area, the United Kingdom (and Gibraltar), and Switzerland that are consistent with EU, UK, and Swiss law. On July 10, 2023, the European Commission adopted its adequacy decision for the EU-U.S. DPF. The adequacy decision concludes that the United States ensures an adequate level of protection – compared to that of the EU - for personal data transferred from the EU to US companies participating in the EU-U.S. DPF. On October 12, 2023, the UK Extension to the EU-U.S. DPF, known as the UK-US Data Bridge, took effect, allowing the transfers of personal data from the United Kingdom (UK) to the US without the need of having additional mechanism or safeguards in place.
Further, the European Commission regularly re-examines its adequacy decisions, including its Decision 2011/61/EU regarding the adequacy of Israeli law. On January 15, 2024, the European Commission successfully concluded its review of 11 existing adequacy decisions. These decisions had been adopted under the EU data protection legislation that preceded the GDPR. The European Commission finds that personal data transferred from the European Union to Andorra, Argentina, Canada, Faroe Islands, Guernsey, the Isle of Man, Israel, Jersey, New Zealand, Switzerland and Uruguay, continues to benefit from adequate data protection safeguards. Therefore, the adequacy decisions adopted for these eleven countries and territories remain in place and data can continue to flow freely to these jurisdictions. In addition, while the European Commission adopted an adequacy decision for the UK on June 28, 2021, allowing the continued flow of personal data from the EEA to the UK, this decision will automatically expire in June 2025 unless the European Commission re-assesses and renews or extends that decision. The decision will be regularly reviewed by the European Commission going forward and may be revoked if the UK diverges from its current data protection laws and the European Commission deems the UK to no longer provide adequate protection of personal data.
Additionally, in June 2018, California passed the California Consumer Privacy Act, or CCPA, which provides new data privacy rights for California consumers and new operational requirements for covered companies. Specifically, the CCPA provides that covered companies must provide new disclosures to California consumers and afford such consumers new data privacy rights that include the right to request a copy from a covered company of the personal information collected about them, the right to request deletion of such personal information, and the right to request to opt-out of certain sales of such personal information. The California Attorney General can enforce the CCPA, including seeking an injunction and civil penalties for violations. The CCPA also provides a private right of action for certain data breaches expected to increase data breach litigation. The CCPA may require us to modify our data practices and policies and to incur substantial costs and expenses in order to comply. On November 3, 2020, California voters passed the California Privacy Rights Act into law, which took effect in January 2023 and significantly expands the CCPA, including by introducing additional obligations such as data minimization and storage limitations, granting additional rights to consumers. The CCPA may increase our compliance costs and potential liability. More generally, some observers have noted the CCPA could mark the beginning of a trend toward more stringent United States state and federal privacy legislations, which could increase our potential liability and adversely affect our business. Additional U.S. states have implemented, or are in the process of implementing, similar new laws or regulations (for example, the Virginia Consumer Data Protection Act (“VCDPA”), which took effect on January 1, 2023, and the Colorado Privacy Act (“CPA”), which took effect on July 1, 2023, Connecticut Data Privacy Act (“CDPA”) which took effect on July 1, 2023 Utah Consumer Privacy Act (“UCPA”) which took effect on December 31, 2023) that impose new privacy rights and obligations that resemble the CCPA. More generally, some observers have noted that the CCPA, VCDPA, CPA, CDPA and UCPA could mark the beginning of a trend toward more stringent United States federal privacy legislation, which could increase our potential liability and adversely affect our business.
Moreover, other federal laws have been enacted. For example, the Children’s Online Privacy Protection Rule that restricts online service providers’ collection of user data on minors as well as distribution of materials deemed harmful to minors. In many respects, these state laws focus on advertising activities, mandating that businesses that engage in certain advertising uses of consumer personal data to offer and honor an opt-out of such activities, including, in some states, through browser or device-based preference signals. These state privacy laws also provide consumers other rights, such as to access, correct or delete their personal data (subject to certain limitations), opt out of certain processing of their personal data, and impose special rules on the collection of data from minors, as well as transparency and data governance obligations. Additionally, new state privacy laws (including, privacy laws, social media regulations, children online data laws and data broker laws) are expected to become effective in 2024, including privacy laws in Florida, Oregon, Texas, and Montana, and additional states are expected to follow in future years. There are also a number of legislative proposals pending before the U.S. Congress and various state legislative bodies concerning various data protection topics, including, privacy, children data, data brokers, which could affect us. The abovementioned laws, regulations and decisions could impact our services, business operations, practices, products, or our ability to receive information necessary to conduct our business.
In addition, failure to comply with the Israeli Privacy Protection Law 5741-1981, and its regulations as well as the guidelines of the Israeli Privacy Protection Authority, may expose us to administrative fines, civil claims (including class actions), and in certain cases, criminal liability. Current pending amendment to the Israeli Privacy Protection Law, 1981 is expected to enhance fines and sanctions for breaching the Israeli Privacy Law and to strengthen the enforcement capacity of the Israeli Privacy Protection Authority. There have also been privacy bills enacted in other countries around the world, such as Brazil, which have introduced new or expanded privacy requirements and we expect that privacy legislation will continue to evolve in the coming years. Therefore, it is difficult to determine whether and how such existing laws and regulations will apply to and impact the internet and our business.
On January 15, 2024, the European Commission successfully concluded its review of 11 existing adequacy decisions. These decisions had been adopted under the EU data protection legislation that preceded the GDPR. The European Commission finds that personal data transferred from the European Union to Andorra, Argentina, Canada, Faroe Islands, Guernsey, the Isle of Man, Israel, Jersey, New Zealand, Switzerland, and Uruguay, continues to benefit from adequate data protection safeguards. Therefore, the adequacy decisions adopted for these eleven countries and territories remain in place and data can continue to flow freely to these jurisdictions.
Any failure or perceived failure by our subsidiaries or by us to comply with our posted privacy policies, our privacy-related obligations to users or other third parties, or any other legal obligations or regulatory requirements relating to privacy, data protection, or data security may result in governmental investigations or enforcement actions, litigation, claims, or public statements against us by consumer advocacy groups or others and could result in significant liability, cause our users to lose trust in us, and otherwise materially and adversely affect our reputation and business. Furthermore, the costs of compliance with, and other burdens imposed by, the laws, regulations, other obligations, and policies that are applicable to the businesses of our users may limit the adoption and use of, and reduce the overall demand for, our platform. Additionally, if third parties we work with violate applicable laws, regulations, or contractual obligations, such violations may put our users’ data at risk, could result in governmental investigations or enforcement actions, fines, litigation, claims, or public statements against us by consumer advocacy groups or others and could result in significant liability, cause our users to lose trust in us, and otherwise materially and adversely affect our reputation and business. Further, public scrutiny of, or complaints about, technology companies or their data handling or data protection practices, even if unrelated to our business, industry, or operations, may lead to increased scrutiny of technology companies, including us, and may cause government agencies to enact additional regulatory requirements, or to modify their enforcement or investigation activities, which may increase our costs and risks.
While it is generally the laws of the jurisdiction in which our business is located apply, there is a risk that data protection regulators of other countries may seek jurisdiction over our remotely activities in locations in which we process data of our customers, but do not have an operating entity. Where the local data protection and privacy laws of a jurisdiction apply, we may be required to register our operations in that jurisdiction or make changes to our business so that personal data is only collected and processed in accordance with applicable local law. In addition, because our services are accessible worldwide, certain foreign jurisdictions may claim that we are required to comply with their privacy and data protection laws, including in jurisdictions where we have no local entity, employees, or infrastructure. In such cases, we may require additional legal review and resources to ensure compliance with any applicable privacy or data protection laws and regulations. In addition, in many jurisdictions there may in the future be new legislation that may affect our business and require additional legal review. Additionally, if third parties we work with violate applicable laws, regulations, or contractual obligations, such violations may put our users’ data at risk, could result in governmental investigations or enforcement actions, fines, litigation, claims, or public statements against us by consumer advocacy groups or others and could result in significant liability, cause our users to lose trust in us, and otherwise materially and adversely affect our reputation and business. Further, public scrutiny of, or complaints about, technology companies or their data handling or data protection practices, even if unrelated to our business, industry, or operations, may lead to increased scrutiny of technology companies, including us, and may cause government agencies to enact additional regulatory requirements, or to modify their enforcement or investigation activities, which may increase our costs and risks.
Risks Related to Gix Internet’s Business and Industry
Gix Internet’s success depends, in part, upon the continued demand of digital advertising as an integral part of corporate marketing and internal communications plans and the continued growth and acceptance of digital content as effective alternatives to traditional offline marketing products and services.
Gix Internet provides digital advertising platforms. Its revenues are derived from the sale of its platforms. If the demand for digital advertising does not continue to grow or customers do not embrace its platforms, this could have a material adverse effect on its business and financial condition.
Gix Internet’s success also depends, in part, on its ability to compete for a share of available advertising/marketing expenditures as more traditional offline and emerging media companies continue to enter the digital advertising market, as well as on the continued growth and acceptance of digital advertising generally. If for any reason digital advertising is not perceived as effective (relative to traditional advertising), web browsers, software programs and/or other applications that limit or prevent advertising from being displayed become commonplace and/or the industry fails to effectively manage click fraud, the market for digital advertising will be negatively impacted. Any lack of growth in the market for digital advertising could adversely affect its business, financial condition, and results of operations.
Online platform updates, including operating systems, search engines, browsers and social media might affect Gix Internet’s ability to generate revenues, temporarily or permanently.
Gix Internet complies with certain guidelines promulgated by online platforms for the use of the respective brands and services. Online platforms may unilaterally update their policies and guidelines, which could, in turn, require modifications to, or prohibit and/or render obsolete certain of its advertising solutions, products, services and practices, which could be costly to address or otherwise have an adverse effect on its business, its financial condition and results of operations. Noncompliance with platforms’ guidelines, whether by it or by third parties it works with, if not cured, could result in such online platforms’ suspension of some or all of their services to it, or to the websites of third parties it works with, or the reimbursement of funds paid to it, or the imposition of additional restrictions on our advertising abilities or the termination of certain advertising agreements with its customers.
Should the providers of internet browsers, advertisement platforms and Search Engines further regulate, constrain or limit Gix Internet’s ability to offer advertising services, or materially change their guidelines, technology or the way they operate, its ability to generate revenue from advertising could be significantly reduced.
As Gix Internet provides its services through the internet, it’s reliant on its ability to work with the different internet browsers, search engines and advertisement platforms. If Microsoft, Google, Apple, Meta or other companies that provide internet browsers, advertisement platforms and search engines, effectively further restrict, discourage or otherwise hamper companies, like Gix Internet, from offering or advertising services, this would continue to cause a material adverse effect on its revenue and its financial results.
Large and established internet and technology companies, such as Google and Meta, play a substantial role in the digital advertising market and may significantly impair Gix Internet’s ability to operate in this industry.
Google and Meta are substantial players in the digital advertising market and account for a large portion of the digital advertising budgets, along with other smaller players. Such high concentration subjects Gix Internet to unilateral changes with respect to advertising on their respective platforms, which may be more lucrative than alternative methods of advertising or partnerships with other publishers that are not subject to such changes. Furthermore, Gix Internet could have limited ability to respond to, and adjust for, changes implemented by such players.
These companies, along with other large and established Internet and technology companies, may also leverage their power to make changes to their web browsers, operating systems, platforms, networks or other products or services in a way that impacts the entire digital advertising marketplace.
The use of third-party software solutions for the purpose of blocking ads and / or alerts may cause Gix Internet’s business to suffer.
Digital advertising may be blocked by third-party providers. As a result, Gix Internet may lose both existing and potential new customers and its ability to generate revenue will be negatively impacted.
Gix Internet depends on supply sources to provide it with an advertising inventory in order for it to deliver advertising campaigns in a cost-effective manner.
Gix Internet relies on a diverse set of publishers including direct publishers, advertising exchange platforms, social networks and other platforms, that aggregate advertising inventory, to provide it with high-quality digital advertising inventory on which it delivers ads, collectively referred to as “supply sources”. The future growth of Gix Internet’s advertising business will depend, in part, on its ability to maintain, expand and further develop successful business relationships in order to increase the network of its supply sources.
Gix Internet’s supply sources typically make their advertising inventory available to it on a non-exclusive basis and are not required to provide any minimum amounts of advertising inventory to it or to provide it with a consistent supply of advertising inventory, at any predetermined price or through real time bidding. Supply sources often maintain relationships with various sources of demand that compete with Gix Internet, and it is easy for supply sources to quickly shift their advertising inventory among these demand sources, or to shift inventory to new demand sources, without notice or accountability. Supply sources may also seek to change the terms at which they offer inventory to Gix Internet, or they may allocate their advertising inventory to its competitors who offer more favorable economic terms, better solutions and advanced technology. Supply sources may also elect to sell all, or a portion, of their advertising inventory directly to advertisers and agencies, or they may develop their own competitive offerings, which could diminish the demand for Gix Internet’s solutions. In addition, significant supply sources within the industry may enter into exclusivity arrangements with Gix Internet’s competitors, which could limit its access to a meaningful supply of inventory. As a result of all of these factors, Gix Internet’s supply sources may not supply it with sufficient amounts of high-quality digital advertising inventory in order for it to fulfill the demands of its advertising customers.
Because of these factors, Gix Internet seeks to expand and diversify its supply sources; nonetheless, if its supply sources terminate or reduce its access to their advertising inventory, increase the price of inventory or place significant restrictions on the sale of their advertising inventory, or if platforms or exchanges terminate its access to them and it is unsuccessful in establishing or maintaining its relationships with supply sources on commercially reasonable terms, it may not be able to replace this with inventory from other supply sources that satisfy its requirements in a timely and cost-effective manner. If any of these happens, Gix Internet’s revenue could decline or its cost of acquiring inventory could increase, which, in turn, could lower its operating margins and materially adversely affect its advertising business.
Reliance upon Gix Internet’s top customers may adversely affect its revenue and operating results.
Gix Internet’s main customers represented approximately 87% and 68% of its consolidated revenue for the years ended December 31, 2023, and 2022, respectively on a pro forma basis. It is likely that Gix Internet will depend on a relatively small number of customers for a significant portion of its revenue in the future. If a top customer fails to pay Gix Internet, cash flow from operations would be impacted and its operating results and financial condition could be harmed. Additionally, if Gix Internet were to lose a material customer, it may not be able to offer its services at similar utilization or pricing levels and such loss could have an adverse effect on its business until the services are offered at similar utilization or pricing levels.
Gix Internet’s search platform depends heavily upon revenue generated from a material agreement with one Major Customer (the “Major Customer”), and any adverse change in that agreement could adversely affect its business, financial condition and results of operations.
Gix Internet is highly dependent on the material agreement with its Major Customer. If this material agreement is terminated or substantially amended (not on favorable terms), Gix Internet would experience a material decrease in its revenue or the profits it generates and would be forced to seek alternative customers, at less competitive terms or accelerate the business it has with the other customers. There are few companies in the market that provide internet search and search advertising services with whom Gix Internet can directly engage in the same manner which we are engaged with its Major Customer. Such companies are substantially the only participants in western markets, and competitors do not offer as much coverage through sponsored links or searches. Gix Internet may divert its operations and user traffic to other third-party partners which provide search feed to search engines, however Gix Internet cannot guarantee that it will be successful. If Gix Internet fails to quickly locate, negotiate and finalize alternative arrangements or otherwise expedite current operations it has with such alternative search providers, or if it does, but the alternatives do not provide for terms that are as favorable as those currently provided and utilized, it would experience a material reduction in its revenue and, in turn, its business, financial condition and results of operations would be adversely affected.
Reliance upon material suppliers may adversely affect Gix Internet’s revenue and operating results.
Gix Internet is dependent on certain material suppliers and service providers for some of the services it renders. In certain cases, Gix Internet relies on a single supplier and/or service provider for the services it offers its customers. In most cases Gix Internet does not have long term contracts with these suppliers, and even in the cases where it does, the contracts include significant qualifications that would make it extremely difficult for it to force the supplier or service provider to provide it with their services, should they choose not to do so. Gix Internet is therefore subject to the risk that these third-parties it works with will not be able or willing to continue to provide it with services that meet its specifications, quality standards and delivery schedules. Factors that could impact these third parties’ willingness and ability to continue to provide Gix Internet with the required services include disruption at or affecting their facilities, such as work stoppages or natural disasters, adverse weather or other conditions that affect their supply, their financial conditions and / or deterioration in its relationships with these third parties. In addition, Gix Internet cannot be sure that it will be able procure the services its needs on satisfactory terms. Any increase in costs could reduce Gix Internet’s revenues and harm its gross margins. In addition, any loss of a material supplier and / or service provider may permanently cause a change in one or more of Gix Internet’s services that may not be accepted by its customers or cause it to eliminate that product altogether.
Gix Internet may not be able to generate enough cash flow to meet its debt obligations or fund its other liquidity needs.
Gix Internet’s ability to satisfy its liabilities will depend upon future performance and its ability to repay or refinance its debt as it becomes due. Gix Internet’s future operating performance and ability to refinance will be affected by economic and capital market conditions, results of operations and other factors, many of which are beyond its control. Its ability to meet its debt obligations also may be impacted by changes in prevailing interest rates, as borrowings under our loans bear interest at floating rates.
Gix Internet’s success is dependent on the preferences of consumers, internet users and advertisers.
Gix Internet’s services rely on the digital devices used by consumers and users. To the extent that users change their consumption habits, or to the extent that traffic does not grow, its activities may decrease and its business operations could be harmed.
A change in advertisers’ preferences could also affect Gix Internet’s operations. Advertisers may change their preferences relating to their willingness to work with certain technologies and certain advertising platforms, which could reduce Gix Internet’s activities and harm its business operations.
A loss of the services of Gix Internet’s technology vendors could adversely affect the execution of its business strategy.
Should some of Gix Internet’s technology vendors terminate their relationship with Gix Internet, Gix Internet’s ability to continue the development of some of its platforms could be adversely affected, until such time that Gix Internet finds adequate replacement for these vendors, or until such time that it can continue the development on its own.
The report of Gix Internet’s independent registered public accounting firm contains an explanatory paragraph regarding substantial doubt about its ability to continue as a going concern, which could prevent it from obtaining new financing on reasonable terms or at all.
The report of Gix Internet’s independent registered public accounting firm on its audited consolidated financial statements for the year ended December 31, 2023, contains an explanatory paragraph regarding substantial doubt about its ability to continue as a going concern. Gix Internet’s audited consolidated financial statements do not include any adjustments that might result from the outcome of the uncertainty regarding its ability to continue as a going concern. This going concern opinion could materially limit Gix Internet’s ability to raise additional funds through the issuance of equity or debt securities or otherwise. Further reports on Gix Internet’s consolidated financial statements may include an explanatory paragraph with respect to its ability to continue as a going concern. Until Gix Internet’s can generate significant recurring cash flow, Gix Internet expects to satisfy its future cash needs through debt or equity financing. Gix Internet cannot be certain that additional funding will be available to it on acceptable terms, if at all. If funds are not available, Gix Internet may be required to delay or reduce the scope of its operations.
Risks Related to Gix Internet’s Competition
Gix Internet’s implementation and use of artificial intelligence technologies may not be successful, which may impair its ability to compete effectively, result in reputational harm and have an adverse effect on its business.
Gix Internet uses artificial intelligence technologies (“AI”) throughout its business and continuously attempts to improve its use of such technologies. For example, Gix Internet uses AI to translate articles from English into multiple languages on its content platform. As with many technological innovations, there are significant risks and challenges involved in developing, maintaining, and deploying these technologies and there can be no assurance that the usage of such technologies will always enhance Gix Internet’s products or services or be beneficial to its business, including to its efficiency or profitability. In addition, the market for AI is rapidly evolving and remains unproven in many industries, including Gix Internet’s own. Gix Internet cannot ensure that the market will continue to grow or that it will grow in the manner it anticipates.
Gix Internet is currently in various stages of development of its AI systems, and it may not be successful in such development in the face of novel and evolving technical, reputational and market factors. The development, maintenance and operation of Gix Internet’s artificial intelligence technologies are expensive and complex, and may involve unforeseen difficulties including material performance problems, undetected defects, or errors. Furthermore, Gix Internet uses third-party AI technologies or software, which may introduce significant risks to its cybersecurity as these could spread vulnerabilities, defects viruses, ransomware, or malware through our products and/or services across its supply chain and operations. Gix Internet may encounter technical obstacles, and it is possible that it may discover additional problems that may prevent its technologies from operating properly, which could adversely affect its business, customer relationships and reputation.
Gix Internet faces significant competition from other companies in its industry in relation to the development and deployment of AI. Those other companies may develop AI technologies that are similar or superior to Gix Internet’s and/or are more cost-effective and/or quicker to develop and deploy. If Gix Internet cannot develop, offer, or deploy new AI technologies as effectively, as quickly and/or as cost-efficiently as its competitors, Gix Internet could experience a material adverse effect on its operating results of operation, customer relationships and growth.
Risks Related to Data Protection Regulation
Gix Internet may not be able to protect its systems, technology, and infrastructure from cyberattacks.
Gix Internet relies on information technology systems to operate and manage its business and to process, maintain, and safeguard information, including information related to its customers, partners, and personnel. This information is stored and managed within its internal information technology infrastructure or, in certain instances, on platforms maintained by third-party service providers. These systems, whether operated internally or externally, may be subject to attacks by perpetrators of malicious technology-related events, such as the use of botnets, malware or other destructive or disruptive software, distributed denial of service attacks, phishing, attempts to misappropriate user information and other similar malicious activities. The incidence of events of this nature (or any combination thereof) is on the rise worldwide. Since the beginning of the war between Israel and Hamas which began on October 7, 2023, Israeli and Israeli associated companies have become more frequent targets of cyberattacks. As such, the risk of a cyberattack against Gix Internet’s platforms may become heightened. While Gix Internet continuously develops and maintains systems designed to detect and prevent events of this nature from impacting its platforms, Gix Internet has invested and continues to invest in these efforts. These efforts are costly and require ongoing monitoring and updating as technologies change and efforts to overcome preventative security measures become more sophisticated.
Any event of this nature that Gix Internet experiences could damage its systems, technology, or infrastructure, prevent Gix Internet from providing its services, compromise the integrity of its services, damage its reputation and/or be costly to remedy, as well as subject Gix Internet to investigations by regulatory authorities, fines and/or litigation that could result in liability to third parties.
As the regulatory framework for AI evolves, including with respect to unintentional bias and discrimination, Gix Internet’s business, financial condition, and results of operations may be adversely affected.
Gix Internet’s business increasingly relies on artificial intelligence technologies. The regulatory framework for this technology is rapidly evolving, and Gix Internet may not always be able to anticipate how to respond to these laws or regulations. Many federal, state, and foreign government bodies and agencies have introduced or are currently considering additional laws and regulations governing the use of such technologies. There is also an increase in litigation in a number of jurisdictions, including the United States, relating to the development, security and use of artificial intelligence.
For example, in October 2023, President Biden issued the Executive Order on Safe, Secure and Trustworthy Artificial Intelligence (“The Order”) with the goal of promoting the “safe, secure, and trustworthy development and use of artificial intelligence in the United States.” The Order has established certain new standards for the training, testing and cybersecurity of sophisticated artificial intelligence models, and the Order has also instructed other federal agencies to promulgate additional regulations within certain timeframes from the date of the Order. Federal artificial intelligence legislation has also been introduced in the U.S. Senate. Such additional regulations may impact Gix Internet’s ability to develop, use and commercialize artificial intelligence and machine learning technologies in the future.
It is possible that the US artificial intelligence framework, along with the adoption of new laws and regulations in other jurisdictions, or the interpretation of existing laws and regulations, may affect the operation of Gix Internet’s platforms and services and the way in which it uses artificial intelligence, including with respect to how it trains its models, unintentional bias and discrimination. Failure to comply with such laws or regulations could subject Gix Internet to legal or regulatory liability. Further, the cost of complying with such laws or regulations could be significant and would increase Gix Internet operating expenses, which could adversely affect its business, financial condition and results of operations.
Risks Related to Eventer’s Business
If Eventer fails to maintain and improve the quality of its platform, it may not be able to attract clients seeking to manage their online and offline events or facilitate ticket sales for events.
To satisfy both clients seeking to manage online and offline events through Eventer’s platform, Eventer needs to continue to improve the user experience and innovate and introduce features and services that both event managers and ticket purchasers find useful cause them to use Eventer’s platform more frequently. In addition, Eventer needs to adapt, expand and improve its platform and user interfaces to keep up with changing user preferences. Eventer invests substantial resources in researching and developing new features and enhancing its platform by incorporating these new features, improving the functionality, and adding other improvements to meet users’ evolving demands. The success of any enhancements or improvements to Eventer’s platform or any new features depends on several factors, including timely completion, adequate quality testing, integration with technologies on the platform and overall market acceptance. Because further development of Eventer’s platform is complex, challenging, and dependent upon an array of factors, the timetable for the release of new features and enhancements to Eventer’s platform is difficult to predict, and it may not offer new features as rapidly as users of its platform require or expect.
It is difficult to predict the problems Eventer may encounter in introducing new features to its platform. Eventer may need to devote significant resources to creating, supporting, and maintaining these features. Eventer provides no assurance that its initiatives to improve the user experience will be successful. Eventer also cannot predict whether users will well receive any new features or whether improving its platform will be successful or sufficient to offset the costs incurred to offer these new features. If Eventer is unable to improve or maintain its platform’s quality, its business, prospects, financial condition, and results of operations could be materially and adversely affected.
Eventer’s business is highly sensitive to public tastes. It is dependent on its ability to secure popular artists and other live music events. Eventer’s ticketing clients may be unable to anticipate or respond to consumer preferences changes, which may result in decreased demand for its services.
Eventer’s business is highly sensitive to rapidly changing public tastes and is dependent on the availability of popular artists and events. Eventer’s live entertainment business depends on its ability to anticipate the tastes of consumers and offer events that appeal to them. Since Eventer relies on unrelated parties to create and perform at live music events as well as online events, any lack of availability of popular artists could limit its ability to generate revenue. If artists do not choose to perform, or if Eventer cannot secure performances and events to be managed and ticketed through its platform, Eventer’s business would be adversely affected. Furthermore, Eventer’s business could be adversely affected if artists utilizing its platform do not tour or perform as frequently as anticipated, or if such tours or performances are not as widely attended by fans as anticipated due to changing tastes, general economic conditions or otherwise.
Eventer faces intense competition in the online and offline event and ticketing industries. It may not be able to maintain or increase its current revenue, which could adversely affect its business, financial condition, and operations results.
Eventer is active in highly competitive industries, and it may not be able to maintain or increase its current revenue due to such competition. Online and offline leisure events compete with other entertainment forms for consumers’ discretionary spending and within this industry, Eventer faces competition from other promoters and venue operators. Eventer’s competitors compete for relationships with popular music artists and other service providers who have a history of being able to book artists for concerts and events. These competitors may engage in more extensive development efforts, undertake more far-reaching marketing campaigns, adopt more aggressive pricing policies and make more attractive offers to existing and potential artists. Due to increasing artist influence and competition to attract and maintain artist clients for events managed on Eventer’s platform, it may enter into agreements on terms that are less favorable to it, which could negatively impact the number of commissions collected from ticket sales which may adversely affect its financial results. Eventer’s competitors may develop services and advertising options equivalent to or superior to those they provide or achieve greater market acceptance and brand recognition than it achieves. Across the live music and entertainment industry, it is possible that new competitors may emerge and rapidly acquire significant market share.
Eventer’s business faces significant competition from other ticketing service providers to continuously secure new and retain existing clients. Additionally, it faces significant and increasing challenges from companies that sell self-ticketing systems and clients who choose to self-ticket by integrating such systems into their existing operations or the acquisition of primary ticket services providers. The advent of new technology, particularly as it relates to online ticketing, has amplified this competition. The intense competition that Eventer faces in the ticketing industry could cause the volume of ticketing services to decline.
If our Eventer subsidiary fails to offer high-quality customer service, their brand and reputation could suffer.
Eventer’s clients rely on the platform to plan and manage online and offline events and expect a high level of user experience and customer service relating to both the event management functions of the platform as well as ticket sales. Providing such quality service is imperative for ensuring customer success, sustaining sales growth, and developing Eventer’s business. To the extent that Eventer cannot provide real-time support for users of its platforms, the platform may become less attractive to potential users, and its results of operations may be harmed.
The success of Eventer’s event management and ticketing solutions and other operations depends, in part, on the integrity of its systems and infrastructure, as well as affiliate and third-party computer systems, Wi-Fi, and other communication systems. System interruption and the lack of integration and redundancy in these systems and infrastructure may have an adverse impact on its business, financial condition, and operations results.
System interruption and the lack of integration and redundancy in the information systems and infrastructure, utilized for Eventer’s platform as well as other computer systems and third-party software, Wi-Fi and other communications systems service providers on which Eventer relies, may adversely affect its ability to operate the platform, process and fulfill transactions, respond to customer inquiries and generally maintain cost-efficient operations. Such interruptions could occur by virtue of natural disasters, malicious actions such as hacking or acts of terrorism or war, or human error. In addition, the loss of some or all of certain key personnel could require Eventer to expend additional resources to continue to maintain its software and systems and could subject it to systems interruptions. The infrastructure required to operate Eventer’s platform requires an ongoing investment of time, money, and effort to maintain or refresh hardware and software and ensure it remains at a level capable of servicing the demand and volume of business it receives. Failure to do so may result in system instability, degradation in performance, or unfixable security vulnerabilities that could adversely impact both the business and the consumers utilizing Eventer’s services.
While Eventer has backup systems for certain aspects of its operations, disaster recovery planning by its nature cannot be sufficient for all eventualities. In addition, Eventer may not have adequate insurance coverage to compensate for losses from a major interruption. If any of these adverse events were to occur, it could adversely affect Eventer’s business, financial condition, and operations results.
Eventer’s success depends, in significant part, on entertainment and leisure events and economic and other factors adversely affecting such events could have a material adverse effect on its business, financial condition and results of operations.
A decline in attendance at or reduction in the number of entertainment and leisure events may have an adverse effect on Eventer’s revenue and operating income. In addition, during periods of economic slowdown and recession, many consumers have historically reduced their discretionary spending and advertisers have reduced their advertising expenditures. The impact of economic slowdowns on Eventer’s business is difficult to predict, but they may result in reductions in ticket sales and the ability to generate revenue. The risks associated with Eventer’s businesses may become more acute in periods of a slowing economy or recession, which may be accompanied by a decrease in attendance at entertainment and leisure events. Many of the factors affecting the number and availability of entertainment and leisure events are beyond Eventer’s control.
Eventer’s business depends on discretionary consumer and enterprise spending. Many factors related to corporate spending and discretionary consumer spending, including economic conditions affecting disposable consumer income such as unemployment levels, fuel prices, interest rates, changes in tax rates and tax laws that impact companies or individuals, and inflation can significantly impact Eventer’s operating results. Business conditions, as well as various industry conditions, including corporate marketing and promotional spending and interest levels, can also significantly impact Eventer’s operating results. These factors can affect attendance at online and offline events, advertising, and spending, as well as the financial results of venues, events, and the industry. Negative factors such as challenging economic conditions and public concerns over terrorism and security incidents, particularly when combined, can impact corporate and consumer spending and one negative factor can result in more than another. There can be no assurance that consumer and corporate spending will not be adversely impacted by current economic conditions or by any future deterioration in economic conditions, thereby possibly impacting Eventer’s operating results and growth. Eventer’s business was further impacted by the ongoing instability in the Middle – East, for more information please see risk factor “Conditions in Israel, including the ongoing war between Israel and Hamas, and other conflicts in the region, may adversely affect our operations and limit our ability to market our products, which would lead to a decrease in revenues” below.
Errors, defects, or disruptions in Eventer’s platform could diminish its brand, subject it to liability, and materially and adversely affect its business, prospects, financial condition, and operations results.
Any errors, defects, or disruptions in Eventer’s platform or other performance problems with its platform could harm its brand and may damage the businesses of artists and clients that manage events on its platform. Eventer’s online systems, including its website and mobile apps, could contain undetected errors, or “bugs,” that could adversely affect their performance. Additionally, Eventer regularly updates and enhances its website, platform, and other online systems and introduces new versions of its software products and apps. These updates may contain undetected errors when first introduced or released, which may cause disruptions in its services and may, as a result, cause Eventer to lose market share, and its brand, business, prospects, financial condition and results of operations could be materially and adversely affected.
Eventer is subject to escrow, payment services, and money transmitter regulations that may materially and adversely affect its business.
Eventer relies on third-parties to collect funds from ticket purchasers, remit payments to clients that manage events on its platform and hold funds in connection with ticket purchases. Although Eventer believes that by working with third parties, its operations comply with existing applicable laws and regulatory requirements related to escrow, money transmission, handling or moving of money, existing laws or regulations may change, and interpretations of existing laws regulations may also change.
As a result, Eventer could be required to be licensed as an escrow agent or a money transmitter (or other similar licensees) in jurisdictions in which it is active or may choose to obtain such a license even if not required. As a result, Eventer may be required to register as a money services business under applicable laws and regulations. It is also possible that Eventer could become subject to regulatory enforcement or other proceedings in those jurisdictions with escrow, money transmission, or other similar statutes or regulatory requirements related to the handling or moving of money, which could, in turn, have a significant impact on its business, even if we were to ultimately prevail in such proceedings. Any developments in the laws or regulations related to escrow, money transmission, or the handling or moving of money or increased scrutiny of its business may lead to additional compliance costs and administrative overhead.
Eventer faces payment and fraud risks that could materially and adversely affect its business.
Requirements applicable to Eventer’s platform relating to user authentication and fraud detection are complex. If Eventer’s security measures do not succeed, Eventer’s business may be adversely affected. In addition, bad actors worldwide use increasingly sophisticated methods to engage in illegal activities involving personal data, such as unauthorized use of another’s identity or payment information, unauthorized acquisition or use of credit or debit card details, and other fraudulent use of another’s identity or information. This could result in any of the following, each of which could adversely affect Eventer’s business:
| ● | Eventer may be held liable for the unauthorized use of a credit card or bank account number by ticket purchasers and be required by card issuers or banks to pay a chargeback or return fee, and if chargeback or return rate becomes excessive, credit card networks may also require Eventer to pay fines or other fees; |
| ● | Eventer may be subject to additional risk and liability exposure, including negligence, fraud or other claims, if employees or third-party service providers misappropriate user information for their own gain or facilitate the fraudulent use of such information; and |
| ● | Eventer may suffer reputational damage as a result of the occurrence of any of the above. |
Despite measures taken by Eventer to detect and reduce the risk of this kind of conduct, it cannot ensure that any of its measures will stop illegal or improper use of its platform. Eventer may receive complaints from users and other third parties concerning misuse of its platform in the future. Even if these claims do not result in litigation or are resolved in Eventer’s favor, these claims, and the time and resources necessary to resolve them, could divert the resources of Eventer’s management and materially and adversely affect its business, prospects, financial condition and results of operations.
Eventer uses open source software, which could negatively affect its ability to offer its platform and subject it to litigation or other actions.
Eventer uses substantial amounts of open source software in its platform and may use more open source software in the future. From time to time, there have been claims challenging both the ownership of open source software against companies that incorporate open source software into their products and whether such incorporation is permissible under various open source licenses. U.S. and Israeli courts have not interpreted the terms of many open source licenses, and there is a risk that these licenses could be construed in a way that could impose unanticipated conditions or restrictions on its ability to commercialize its platform. As a result, Eventer could be subject to lawsuits by parties claiming ownership of what we believe to be open source software, or breach of open source licenses. Litigation could be costly for Eventer to defend, have a negative effect on its results of operations and financial condition, or require it to devote additional research and development resources to change its platform. In addition, if Eventer were to combine its proprietary source code or software with open source software in a certain manner, it could, under certain of the open source licenses, be required to release the source code of its proprietary software to the public. This would allow its competitors to create similar products with less development effort and time. If Eventer inappropriately uses open source software or the license terms for open source software that its uses change, Eventer may be required to re-engineer its platform, or certain aspects of it, incur additional costs, discontinue the availability of certain features, or take other remedial actions.
In addition to risks related to license requirements, open source software usage can lead to greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or assurance of title or controls on origin of the software. In addition, many of the risks associated with usage of open source software, such as the lack of warranties or assurances of title, cannot be eliminated and could, if not properly addressed, negatively affect Eventer’s business. Eventer has established processes to help alleviate these risks, but it cannot be sure that all of its use of open source software is in a manner that is consistent with its current policies and procedures or will not subject Eventer to liability.
To the extent Eventer’s security measures are compromised, its platform may be perceived as not being secure. This may result in customers curtailing or ceasing their use of Eventer’s platform, its reputation being harmed, Eventer incurring significant liabilities, and adverse effects on its results of operations and growth prospects.
Eventer’s operations involve the storage and transmission of artist and ticket purchaser data or information. Cyberattacks and other malicious internet-based activity continue to increase, and cloud-based platform providers of services are expected to continue to be targeted. Threats include traditional computer “hackers,” malicious code (such as viruses and worms), employee theft or misuse and denial-of-service attacks. Sophisticated nation-states and nation-state supported actors now engage in such attacks, including advanced persistent threat intrusions. The ticket sales solution included in Eventer’s platform stores credit card data and other customer personal information. Hackers and malicious actors may target Eventer in order to obtain credit card information. Despite significant efforts to create security barriers to such threats, it is virtually impossible for Eventer to entirely mitigate these risks. If Eventer’s security measures are compromised as a result of third-party action, employee or customer error, malfeasance, stolen or fraudulently obtained log-in credentials, or otherwise, Eventer’s reputation could be damaged, its business may be harmed, and it could incur significant liability. Eventer may be unable to anticipate or prevent techniques used to obtain unauthorized access or to compromise its systems because they change frequently and are generally not detected until after an incident has occurred. As Eventer relies on third-party and public-cloud infrastructure, it will depend in part on third-party security measures to protect against unauthorized access, cyberattacks, and the mishandling of customer data. A cybersecurity event could have significant costs, including regulatory enforcement actions, litigation, litigation indemnity obligations, remediation costs, network downtime, increases in insurance premiums, and reputational damage. Many companies that provide cloud-based services have reported a significant increase in cyberattack activity.
Risks Related to Jeffs’ Brands Business
Jeffs’ Brands have a short operating history in an evolving industry and, as a result, Jeffs’ Brands past results may not be indicative of future operating performance.
Jeffs’ Brands has a short operating history in a rapidly evolving industry that may not develop in a manner favorable to our business. Jeffs’ Brands relatively short operating history makes it difficult to assess future performance.
Jeffs’ Brands future success depends in large part upon the ability to, among other things:
| ● | manage inventory and supply chain effectively; |
| ● | successfully develop, retain and expand our consumer product offerings and geographic reach; |
| ● | compete effectively; |
| ● | anticipate and respond to macroeconomic changes; |
| ● | effectively manage growth; |
| ● | hire, integrate and retain talented people at all levels of organization; |
| ● | avoid interruptions in Jeffs’ Brands business from information technology downtime, cybersecurity breaches or labor stoppages; |
| ● | maintain the quality of technology infrastructure; and |
| ● | develop new features to enhance functionality. |
Jeffs’ Brands may not be able to manage growth effectively, and such rapid growth may adversely affect Jeffs’ Brands corporate culture.
Jeffs’ Brands expect to rapidly and significantly expand their operations and anticipate expanding further as Jeffs’ Brands pursue growth strategies. Such expansion increases the complexity of Jeffs’ Brands business and places a significant strain on Jeffs’ Brands management, operations, technical systems, financial resources and internal control over financial reporting functions. Jeffs’ Brands current and planned personnel, systems, procedures and controls may not be adequate to support and effectively manage Jeffs’ Brands future operations, especially as Jeffs’ Brands employ personnel in several geographic locations.
Jeffs’ Brands is currently in the process of transitioning certain of Jeffs’ Brands business, operational and financial systems to systems on a scale reflecting the increased size, scope and complexity of their operations, and the process of migrating the legacy systems could disrupt our ability to timely and accurately process information, which could adversely affect results of operations and cause harm to Jeffs’ Brands reputation. As a result, Jeffs’ Brands may not be able to manage Jeffs’ Brands expansion effectively.
We believe that Jeffs’ Brands entrepreneurial and collaborative culture has been a major contributor to its success. Jeffs’ Brands may have difficulties maintaining such culture or adapting it sufficiently to meet the needs of Jeffs’ Brands future and evolving operations as it continues to grow, in particular as Jeffs’ Brands grows internationally.
In addition, Jeffs’ Brands expects to experience some challenges in developing and maintaining Jeffs’ Brands culture as a public company, with the attendant changes in policies, practices, and corporate governance and management requirements. Failure to successfully develop or maintain such a culture could have a material adverse effect on Jeffs’ Brands business, results of operations, financial condition and prospects.
Jeffs’ Brands e-commerce operations are reliant on the Amazon marketplace and fulfillment by Amazon and changes to the marketplace, Amazon services and their terms of use may harm Jeffs’ Brands business.
Jeffs’ Brands products are sold predominantly on the Amazon marketplace and orders are fulfilled entirely by Amazon utilizing the fulfilled by Amazon, or FBA, model. In order to continue to utilize the Amazon marketplace and FBA, Jeffs’ Brands must comply with the applicable policies and terms of use relating to these services. Such policies and terms of use may be altered or amended at Amazon’s sole discretion, including changes regarding the cost of securing these services, and changes that increase the burden of compliance with its requirements, may cause Jeffs Brands to significantly alter Jeffs’ Brands business model or incur additional costs in order to comply, which could negatively impact Jeffs’ Brands results of operations. Non-compliance with applicable terms of use and policies can result in the removal of one or more products from the marketplace and suspension of fulfillment services either of which could have a material adverse effect on Jeffs’ Brands business and results of Jeffs’ Brands operations. Although Jeffs’ Brands exert efforts in order to ensure ongoing compliance and no notices of non-compliance have been received to date, we cannot assure you that events of this kind will not occur in the future.
Jeffs’ Brands relies on other information technologies and systems to operate its business and to maintain its competitiveness, and any failure to invest in and adapt technological developments and industry trends could hard its business.
Jeffs’ Brands depends on sophisticated information and systems, technology and systems used for websites and apps, customer service, logistics and fulfillment, supplier connectivity communications and administration. As its operations grow in size, scope and complexity, it will need to continuously improve and upgrade its systems and infrastructure to offer an increasing number of consumer-enhanced services, features and functionalities, while maintaining and improving the reliability and integrity of its systems and infrastructure.
Jeffs’ Brands future success also depends on its ability to assimilate different analytical tools as well as internal methodologies, including logistics and fulfillment platform which leverages, to meet rapidly evolving e-commerce trends and demands. The emergence of alternative platforms may require Jeffs’ Brands to continue to invest in new and costly technology. It may not be successful, or it may be less successful than its competitors, in adopting technologies that operate effectively across multiple e-commerce platforms, which would negatively impact its business and financial performance. New developments in other areas, such as cloud computing providers, could also make it easier for competitors to enter Jeffs’ Brands markets due to lower up-front technology costs. In addition, Jeffs’ Brands may not be able to maintain its existing systems or replace its current systems or introduce new technologies and systems as quickly or cost effectively as it would like. Failure to invest in and adapt to technological developments and industry trends may have a material adverse effect on its business, results of operations, financial condition and prospects.
Jeffs’ Brands relies on data provided by third parties, the loss of which could limit the functionality of its platforms, cause it to invest in the wrong product or disrupt its business.
Jeffs’ Brands uses third party software to determine market trends and what markets to enter into. Its ability to successfully use this software depends on its ability to analyze and utilize data, including search engine results, provided by unaffiliated third parties, primarily, Google and Amazon. Some of this data is provided to it pursuant to third-party data sharing policies and terms of use, under data sharing agreements by third-party providers or by customer consent. The majority of this data is sourced for free or for de minimis amounts. These sources of data allow Jeffs’ Brands, utilizing internal methodologies, to determine trends, performance and consumer sentiment on products and searches within e-commerce platforms. This functionality allows it to help determine which products to market, in some cases manufacture through contract manufacturers, import and sell on e-commerce marketplaces. The connection to multiple e-commerce platforms through application programming interfaces, or APIs, allows Jeffs’ Brands to develop the automation of the purchase of marketing and automate the change of pricing of product listings on those e-commerce platforms.
In the future, any of these third parties could change its data sharing policies, including making them more restrictive, charging fees or altering its algorithms that determine the placement, display and accessibility of search results and social media updates, any of which could result in the loss of, or significant impairment to, Jeffs’ Brands ability to collect useful data. These third parties could also interpret its’, or its service providers’, data collection policies or practices as being inconsistent with their policies, which could result in the loss of its ability to collect this data. Privacy concerns may cause end users to resist providing the personal data necessary to allow Jeffs’ Brands to determine market trends as well as our ability to effectively retain existing customers. Privacy advocacy groups and the technology and other industries are considering various new, additional or different self-regulatory standards that may place additional burdens on Jeffs’ Brands. Any such changes could impair its ability to use data and could adversely impact select functionality of our proprietary software, impairing our ability to use this data to anticipate customer demand and market trends, as well as adversely affecting Jeffs’ Brands business and its ability to generate revenue.
Jeffs’ Brands business depends on its ability to build and maintain strong product listings on e-commerce platforms. It may not be able to maintain and enhance its product listings if it receives a substantial number of customer complaints, negative publicity or otherwise fails to live up to customers’ expectations, any of which could materially adversely affect its business, results of operations and growth prospects.
Maintaining and enhancing Jeffs’ Brands product listings is critical in expanding and growing its business. However, a significant portion of its perceived performance to the customer depends on third parties outside of its control, including suppliers and logistics providers such as FedEx, UPS, postal services and other third-party delivery agents and online retailers, mainly Amazon. Because Jeffs’ Brands agreements with its online retail partners are generally terminable at will, it may be unable to maintain these relationships, and its results of operations could fluctuate significantly from period to period. Because it relies on third party logistics companies, like FedEx, to deliver its products, it is subject to shipping delays or disruptions caused by inclement weather, natural disasters, labor activism, health epidemics or bioterrorism. In addition, because Jeffs’ Brands relies on national, regional and local transportation companies for the delivery of some of its other products, it is also subject to risks of breakage or other damage during delivery by any of these third parties. If these third parties do not meet its or its customers’ expectations, its brands may suffer irreparable damage. In addition, maintaining and enhancing Jeffs’ Brands current and future brands may require it to make substantial investments, and these investments may not yield sufficient returns. If it fails to promote and maintain its brands, or if it incurs excessive expenses in this effort, its business, operating results and financial condition may be materially adversely affected. We anticipate that, as its market becomes increasingly competitive, maintaining and enhancing its brands may become increasingly difficult and expensive. Maintaining and enhancing its brands will depend largely on its ability to anticipate market trends and customer demand and to provide high quality products to its customers and a reliable, trustworthy and profitable sales channel to its suppliers, which it may not be able to do successfully.
A substantial number of customer complaints or negative publicity about Jeffs’ Brands sites, products, delivery times, customer data handling and security practices or customer support, especially on blogs, social media websites or its sites, could rapidly and severely diminish consumer views of its products and result in harm to its brands. Customers may also make safety-related claims regarding products sold through its online retail partners, such as Amazon, which may result in an online retail partner removing the product from its marketplace. Such removal may materially impact its financial results depending on the product that is removed and the length of time that it is removed. Jeffs’ Brands also uses and relies on other services from third parties, such as its telecommunications services, and those services may be subject to outages and interruptions that are not within its control.
Jeffs’ Brands efforts to expand its business into new brands, products, services, technologies and geographic regions will subject it to additional business, legal, financial and competitive risks and may not be successful.
Jeffs’ Brands business success depends to some extent on its ability to expand its consumer offerings by launching new brands, products and services and by expanding its existing offerings into new geographic regions.
Jeffs’ Brands strategy is to use its skills to determine which markets to enter and optimize the mix of products and services that it offers.
Launching new brands, products and services requires significant upfront investments, including investments in marketing (namely digital marketing and PPC (Pay Per Click), information technology and additional personnel. Jeffs’ Brands operates in highly competitive industries with relatively low barriers to entry and must compete successfully in order to grow its business. Jeffs’ Brands may not be able to generate satisfactory revenue from these efforts to offset these costs. Any lack of market acceptance of its efforts to launch new brands, products or services or to expand its existing offerings could have a material adverse effect on its business, prospects, financial condition and results of operations. Further, as Jeffs’ Brands continues to expand our fulfillment capability or add new businesses with different requirements, its logistics networks will become increasingly complex and operating them will become more challenging. There can be no assurance that it will be able to operate its networks effectively.
Jeffs’ Brands has also entered and may continue to enter new markets and provide product offerings in which it has limited or no experience, which may not be successful or appealing to its customers.
The CPG industry is subject to evolving standards and practices, as well as changing consumer needs, requirements and preferences. Jeffs’ Brands’ ability to attract new customers and increase revenue from existing customers depends, in part, on its ability to enhance and improve its existing tools that enable us to pinpoint new markets and introduce new products. The success of any enhancements or new instruments depends on, in part, market-accepted pricing levels and overall market acceptance. Jeffs’ Brands may not be successful in these efforts, which could result in significant expenditures that could impact its revenue or distract management’s attention from current offerings.
Increased emphasis on the sale of new products could distract Jeffs’ Brands from sales of its existing products in existing markets, negatively affecting its overall sales. Jeffs’ Brands has invested and expects to continue to invest in new businesses, products, features, services and technologies. Such endeavors may involve significant risks and uncertainties, including insufficient revenue from such investments to offset any new liabilities assumed and expenses associated with these new investments, inadequate return of capital on our investments, distraction of management from current operations and unidentified issues not discovered in our due diligence of such investments that could cause it to fail to realize the anticipated benefits of such investments and incur unanticipated liabilities. Because these new strategies and offerings are inherently risky, no assurance can be given that they will be successful. Jeffs’ Brands new features or enhancements could fail to attain sufficient market acceptance for many reasons, including:
| ● | delays in introducing products in new markets; |
| ● | failure to accurately predict market demand or end consumer preferences; |
| ● | introduction of competing products; |
| ● | poor financial conditions for our customers or poor general macroeconomic conditions; |
| ● | changes in legal or regulatory requirements, or increased legal or regulatory scrutiny, adversely affecting our products; |
| ● | failure of its brands and products digital promotion activities or negative publicity about the performance or effectiveness of its existing brands and products; and |
| ● | disruptions or delays in the online retailers and, or in addition to, logistics providers distributing our products. |
Shipping is a critical part of Jeffs’ Brands’ business and any changes in shipping costs or any interruptions in shipping could adversely affect its operating results.
If it is not able to negotiate acceptable pricing and other terms with vendors or if vendors experience performance problems or other difficulties, it could negatively impact its operating results and its customers’ experience. It is also subject to volatility in ocean freight rates that are driven, in part, by seasonality, capacity availability, and other factors, including fuel-related regulations affecting the shipping industry. In addition, its ability to receive inbound inventory efficiently and ship merchandise to clients may be negatively affected by inclement weather, fire, flood, power loss, earthquakes, labor disputes, acts of war or terrorism, and similar factors. It is also subject to the risk of damage or loss during delivery by its shipping vendors. If its products are not delivered in a timely fashion or are damaged or lost during the delivery process, its customers could become dissatisfied and cease using its products or services, which would adversely affect its business and operating results.
Risks related to our MUSE™ Technology Business
We are currently proposing our MUSE™ system business for sale or grant of license. If we are unable to sell or license our MUSE™ business or unable to sell or license it in terms acceptable to us, we will have to write off our investment in the MUSE™ system, which will adversely affect our business.
We are currently proposing our MUSE™ system business for sale or license. If we are unable to sell or license our MUSE™ business or unable to sell or license it in terms acceptable to us, we could not derive any value from the sale and will lose significant cash flow, which, in turn, will adversely affect our financial results.
Several factors may delay or prevent us from selling or granting license to our MUSE™ system business:
| ● | potential purchasers’ or licensee perception on the cost, safety, efficacy, and convenience of the MUSE™ system in relation to alternative treatments and products; |
| ● | publicity concerning our products, including MUSE™, or competing products and treatments; |
| ● | patients suffering from adverse events while using the MUSE™ system; and |
| ● | competition from the pharmaceutical sector, which could harm the ability to market and commercialize the MUSE™ system and, as a result, impact the attractiveness of the MUSE™ system in the eyes of potential purchasers. |
Further, we have only limited clinical data to support the value of the MUSE™ system, which may make patients, physicians and hospitals reluctant to accept or purchase our products, and as such a potential purchaser may be reluctant to purchase our MUSE™ business or such lack of data will be reflected in the purchase price.
Moreover, various modifications to our MUSE™ system regulator-cleared products may require new regulatory clearances or approvals or require a recall or cease marketing of the MUSE™ system until clearances or approvals are obtained. Clearances and approvals by the applicable regulator are subject to continual review, and the later discovery of previously unknown problems can result in product labeling restrictions or withdrawal of the product from the market. The potential loss of previously received approvals or clearances, or the failure to comply with existing or future regulatory requirements could reduce the potential sales, profitability and future growth prospects of the MUSE™.
We have entered into a Licensing and Sale Agreement with Shanghai Golden Grand-Medical Instruments Ltd. (“Golden Grand”) for the know-how licensing and sale of goods relating to the Medigus Ultrasonic Surgical Endostapler (MUSE™) system in China with a substantial amount of the consideration subject to milestone achievements.
We entered into a Licensing and Sale Agreement with Shanghai Golden Grand, or Golden Grand Agreement, for the know-how licensing and sale of goods relating to the Medigus Ultrasonic Surgical Endostapler (MUSE™) system in China, Hong Kong, Taiwan and Macao. The payment of a substantial amount of the consideration is contingent on achievement of certain milestones such as establishing a MUSE™ assembly line in China. In the event that we are not able to meet such milestones, due to various factors including natural disasters, public health crises, political crises and trade wars which are not under our control, our entitlement to the aggregate consideration under the agreement may be impaired. Until December 31, 2023, we recognized revenues of $2.4 million due to completion of 80% of the milestones.
Risks Related to Our Intellectual Property
If we are unable to secure and maintain patent or other intellectual property protection for the intellectual property used in our products, our ability to compete will be harmed.
Our commercial success depends, in part, on obtaining and maintaining patent and other intellectual property protection for the technologies used in our products. If we, or the other parties from whom we may license intellectual property, fail to obtain and maintain adequate patent or other intellectual property protection for intellectual property used in our products, or if any protection is reduced or eliminated, others could use the intellectual property used in our products, resulting in harm to our competitive business position. In addition, patent and other intellectual property protection may not provide us with a competitive advantage against competitors that devise ways of making competitive products without infringing any patents that we own or have rights to.
U.S. patents and patent applications may be subject to interference proceedings, and U.S. patents may be subject to re-examination proceedings in the U.S. Patent and Trademark Office and the Federal courts. Foreign patents may be subject to opposition or comparable proceedings in the corresponding foreign patent offices and courts. Any of these proceedings could result in loss of the patent or denial of the patent application, or loss or reduction in the scope of one or more of the claims of the patent or patent application. Changes in either patent laws or in interpretations of patent laws may also diminish the value of our intellectual property or narrow the scope of our protection. Interference, re-examination and opposition proceedings may be costly and time consuming, and we, or the other parties from whom we might potentially license intellectual property, may be unsuccessful in defending against such proceedings. Thus, any patents that we own or might license may provide limited or no protection against competitors. In addition, our pending patent applications and those we may file in the future may have claims narrowed during prosecution or may not result in patents being issued. Even if any of our pending or future applications are issued, they may not provide us with adequate protection or any competitive advantages. Our ability to develop additional patentable technology is also uncertain.
Non-payment or delay in payment of patent fees or annuities, whether intentional or unintentional, may also result in the loss of patents or patent rights important to our business. Many countries, including certain countries in Europe, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to other parties. In addition, many countries limit the enforceability of patents against other parties, including government agencies or government contractors. In these countries, the patent owner may have limited remedies, which could materially diminish the value of the patent. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as do the laws of the United States, particularly in the field of medical products and procedures.
If we are unable to prevent unauthorized use or disclosure of our proprietary trade secrets and unpatented know-how, our ability to compete will be harmed.
Proprietary trade secrets, copyrights, trademarks and unpatented know-how are also very important to our business. We rely on a combination of trade secrets, copyrights, trademarks, confidentiality agreements and other contractual provisions and technical security measures to protect certain aspects of our technology, especially where we do not believe that patent protection is appropriate or obtainable. We require our office holders, employees, consultants and distributors of our products and most third parties (such as contractors or clinical collaborators) to execute confidentiality agreements in connection with their relationships with us. However, these measures may not be adequate to safeguard our proprietary intellectual property and conflicts may, nonetheless, arise regarding ownership of inventions. Such conflicts may lead to the loss or impairment of our intellectual property or to expensive litigation to defend our rights against competitors who may be better funded and have superior resources. Our office holders, employees, consultants and other advisors may unintentionally or willfully disclose our confidential information to competitors. In addition, confidentiality agreements may be unenforceable or may not provide an adequate remedy in the event of unauthorized disclosure. Enforcing a claim that a third party illegally obtained and is using our trade secrets is expensive and time consuming, and the outcome is unpredictable. Moreover, our competitors may independently develop equivalent knowledge, methods and know-how. Unauthorized parties may also attempt to copy or reverse engineer certain aspects of our products that we consider proprietary. As a result, other parties may be able to use our proprietary technology or information, and our ability to compete in the market would be harmed.
We could become subject to patent and other intellectual property litigation that could be costly, result in the diversion of management’s attention, require us to pay damages and force us to discontinue selling our products.
Our industry is characterized by competing intellectual property and a substantial amount of litigation over patent and other intellectual property rights. Determining whether a product infringes a patent involves complex legal and factual issues, and the outcome of a patent litigation action is often uncertain. No assurance can be given that patents containing claims covering our products, parts of our products, technology or methods do not exist, have not been filed or could not be filed or issued. Furthermore, our competitors or other parties may assert that our products and the methods we employ in the use of our products are covered by U.S. or foreign patents held by them. In addition, because patent applications can take many years to issue and because publication schedules for pending applications vary by jurisdiction, there may be applications now pending of which we are unaware and which may result in issued patents which our current or future products infringe. Also, because the claims of published patent applications can change between publication and patent grant, there may be published patent applications with claims that we infringe. There could also be existing patents that one or more of our products or parts may infringe and of which we are unaware.
Infringement actions and other intellectual property claims and proceedings brought against or by us, whether with or without merit, may cause us to incur substantial costs and could place a significant strain on our financial resources, divert the attention of management from our business and harm our reputation. Some of our competitors may be able to sustain the costs of complex patent or intellectual property litigation more effectively than we can because they have substantially greater resources.
We cannot be certain that we will successfully defend against allegations of infringement of patents and intellectual property rights of others. In the event that we become subject to a patent infringement or other intellectual property lawsuit and if the other party’s patents or other intellectual property were upheld as valid and enforceable and we were found to infringe the other party’s patents or violate the terms of a license to which we are a party, we could be required to pay damages. We could also be prevented from selling our products unless we could obtain a license to use technology or processes covered by such patents or will be able to redesign the product to avoid infringement. A license may not be available at all or on commercially reasonable terms or we may not be able to redesign our products to avoid infringement. In these circumstances, we may be unable to sell our products at competitive prices or at all, our business and operating results could be harmed.
We may be subject to claims that our employees, consultants, or independent contractors have wrongfully used or disclosed confidential information of third parties or, that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.
Certain of our employees and personnel were previously employed at universities, medical institutions, or other biotechnology or pharmaceutical companies. Although we try to ensure that our employees, consultants, and independent contractors do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or our employees, consultants, or independent contractors have inadvertently or otherwise used or disclosed intellectual property, including trade secrets or other proprietary information, of any of our employee’s former employer or other third parties. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees. Furthermore, universities or medical institutions who employ some of our key employees and personnel in parallel to their engagement by us may claim that intellectual property developed by such person is owned by the respective academic or medical institution under the respective institution intellectual property policy or applicable law.
We may be subject to claims challenging the inventorship or ownership of our patents and other intellectual property.
We may be subject to claims that former employees, collaborators, or other third parties have an ownership interest in our patents or other intellectual property. Ownership disputes may arise in the future, for example, from conflicting obligations of consultants or others who are involved in developing our product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship or ownership. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.
Disruptions to the Group’s information technology systems due to cyber-attacks or the Group’s failure to upgrade and adjust our information technology systems, may materially impair the Group’s operations, hinder our growth and materially and adversely affect our business and results of operations.
We believe that an appropriate information technology, or IT, infrastructure is important in order to support the Group’s daily operations and the growth of our business. If we experience difficulties in implementing new or upgraded information systems or experience significant system failures, or if we are unable to successfully modify the Group’s management information systems or respond to changes in our business needs, we may not be able to effectively manage the Group’s business, and we may fail to meet our reporting obligations. Additionally, if our current back-up storage arrangements and our disaster recovery plan are not operated as planned, we may not be able to effectively recover our information system in the event of a crisis, which may materially and adversely affect our business and results of operations.
In the current environment, there are numerous and evolving risks to cybersecurity and privacy, including criminal hackers, hacktivists, state-sponsored intrusions, industrial espionage, employee malfeasance and human or technological error. High-profile security breaches at other companies and in government agencies have increased in recent years, and security industry experts and government officials have warned about the risks of hackers and cyber-attacks targeting businesses such as ours. Computer hackers and others routinely attempt to breach the security of technology products, services and systems, and to fraudulently induce employees, customers, or others to disclose information or unwittingly provide access to systems or data. We can provide no assurance that the Group’s current IT system or any updates or upgrades thereto and the current or future IT systems of our distributors use or may use in the future, are fully protected against third-party intrusions, viruses, hacker attacks, information or data theft or other similar threats. Legislative or regulatory action in these areas is also evolving, and we may be unable to adapt the Group’s IT systems or to manage the IT systems of third parties to accommodate these changes. In the current environment, there are numerous and evolving risks to cybersecurity, data and privacy, including criminal hackers, hacktivists, state-sponsored intrusions, industrial espionage, employee malfeasance and human or technological error. High-profile security breaches at other companies and in government agencies have increased in frequency and sophistication in recent years. Moreover, geopolitical tensions, particularly the Hamas-Israel and the Russia-Ukraine conflicts, have contributed to a surge in cyber-attacks targeting Israeli companies and products globally, posing a threat to critical infrastructure. We have experienced and expect to continue to experience actual or attempted cyber-attacks of our IT networks. Although none of these actual or attempted cyber-attacks has had a material adverse impact on our operations or financial condition, we cannot guarantee that any such incidents will not have such an impact in the future.
Risks Related to Regulatory Compliance
If we or our contractors or service providers fail to comply with regulatory laws and regulations, we or they could be subject to regulatory actions, which could affect our ability to develop, market and sell our products in the medical field and any other or future products that we may develop and may harm our reputation in the medical field.
If we or our manufacturers or other third-party contractors fail to comply with applicable federal, state or foreign laws or regulations, including with respect to healthcare and data privacy, we could be subject to regulatory actions, which could affect our ability to develop, market and sell our current products or any future products which we may develop in the future and could harm our reputation and lead to reduced demand for or non-acceptance of our proposed products by the market.
Regulatory reforms may adversely affect our ability to sell our products profitably.
From time to time, legislation is drafted and introduced in the United States, European Union or other countries in which we operate, that could significantly change the statutory provisions governing the clearance or approval, manufacture and marketing of our products, including in the medical devices industry. In addition, regulations and guidance may often be revised or reinterpreted by the regulatory authorities in ways that may significantly affect our business and our products. It is impossible to predict whether legislative changes will be enacted, or interpretations changed, and what the impact of such changes, if any, may be.
If we fail to comply with the extensive government regulations relating to our business, we may be subject to fines, injunctions and other penalties that could harm our business.
The application of our MUSE™ system as a medical device is subject to extensive regulation by the FDA, pursuant to the Federal Food, Drug, and Cosmetic Act, or FDCA, and various other federal, state and foreign governmental authorities. Government regulations and requirements specific to medical devices are wide ranging and govern, among other things:
| ● | design, development and manufacturing; |
| ● | testing, labeling and storage; |
| ● | clinical trials; |
| ● | product safety; |
| ● | marketing, sales and distribution; |
| ● | premarket clearance or approval; |
| ● | record keeping procedures; |
| ● | advertising and promotions; and |
| ● | product recalls and field corrective actions. |
We are subject to annual regulatory audits in order to maintain our quality system certifications, CE mark permissions, FDA Clearance and Canadian medical device license. We do not know whether we will be able to continue to affix the CE mark for new or modified products or that we will continue to meet the quality and safety standards required to maintain the permissions and license we have already received. If we are unable to maintain our quality system certifications and permission to affix the CE mark to our products, we will no longer be able to sell our products in member countries of the European Union or other areas of the world that require CE’s or FDA’s approval of medical devices. If we are unable to maintain our quality system certifications and Canadian medical device license, we will not be able to sell our products in Canada.
Our medical device products and operations are also subject to regulation by the Medical Devices and Accessories Division in the Israeli Ministry of Health, or AMAR, which is responsible for the registration of medical devices in Israel, issuance of import licenses and monitoring marketing of medical equipment. We have received an AMAR approval in Israel. If we fail to comply with the extensive government regulations relating to our business, we may be subject to fines, injunctions and other penalties that could harm our business.
Risks Related to Our Operations in Israel
Conditions in Israel, including the ongoing war between Israel and Hamas, and other conflicts in the region, may adversely affect our operations and limit our ability to market our products, which would lead to a decrease in revenues.
We are incorporated under the laws of the State of Israel, and our employees, including management members, operate from our offices that are located in Tel Aviv, Israel. In addition, a number our officers and directors are residents of Israel. Accordingly, our business and operations are directly affected by economic, political, geopolitical and military conditions in Israel. Since the establishment of the State of Israel in 1948, a number of armed conflicts have occurred between Israel and its neighboring countries and terrorist organizations active in the region. These conflicts have involved missile strikes, hostile infiltrations and terrorism against civilian targets in various parts of Israel, which have negatively affected business conditions in Israel.
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 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 extensive deaths, injuries and kidnapping of civilians and soldiers. Following the attack, Israel’s security cabinet declared war against Hamas and a military campaign against these terrorist organizations commenced in parallel to their continued rocket and terror attacks.
The intensity and duration of Israel’s current war against Hamas is difficult to predict, as are such war’s economic implications on our business and operations and on Israel’s economy in general. These events may be intertwined with wider macroeconomic indications of a deterioration of Israel’s economic standing, for instance, a downgrade in Israel’s credit rating by rating agencies (such as the recent downgrade by Moody’s of its credit rating of Israel from A1 to A2, as well as the downgrade of its outlook rating from “stable” to “negative” and the S&P Global lowered its long-term credit rating from AA- to A+, as well as a downgrade of its short-term credit ratings from A-1+ to A-1, with an outlook on the long-term ratings “negative”). which may have a material adverse effect on our Company and our ability to effectively conduct its operations.
In connection with the Israeli security cabinet’s declaration of war against Hamas and possible hostilities with other organizations, several hundred thousand Israeli military reservists were drafted to perform immediate military service. Certain of our employees and consultants in Israel, in addition to employees of our service providers located in Israel, have been called, and additional employees may be called, for service in the current or future wars or other armed conflicts with Hamas and others, and such persons may be absent for an extended period of time. As a result, our operations may be disrupted by such absences, which disruption may materially and adversely affect our business and results of operations. Additionally, the absence of employees of our Israeli suppliers and contract manufacturers due to their military service in the current or future wars or other armed conflicts may disrupt their operations, which in turn may materially and adversely affect our ability to deliver or provide products and services to customers.
Following the attack by Hamas on Israel’s southern border, Hezbollah in Lebanon also launched missile, rocket, drone and shooting attacks against Israeli military sites, troops and Israeli towns in northern Israel. In response to these attacked, the Israeli army has carried out a number of targeted strikes on sites belonging to Hezbollah in Lebanon. Recently, Iran has directly joined the hostilities against Israel by firing hundreds of drones, ballistic missiles and guided missiles to Israel causing further uncertainty in the region. While currently no damages were registered in Israel from such attack, the situation is developing and could lead to additional wars and hostilities in the Middle East. It is possible that other terrorist organizations, including Palestinian military organizations in the West Bank will join the hostilities. Such hostilities may include terror and missile attacks. In the event that our facilities are damaged as a result of hostile actions, or hostilities otherwise disrupt our ongoing operations, our ability to deliver or provide products and services in a timely manner to meet our contractual obligations towards customers and vendors could be materially and adversely affected. Our commercial insurance does not cover losses that may occur as a result of events associated with war and terrorism. Although the Israeli government currently covers the reinstatement value of certain direct damages that are caused by terrorist attacks or acts of war, we cannot assure you that such government coverage will be maintained or that it will sufficiently cover our potential damages. Any losses or damages incurred by us could have a material adverse effect on our business.
In addition, some countries around the world restrict doing business with Israel and Israeli companies, and additional countries may impose restrictions on doing business with Israel and Israeli companies if hostilities in Israel or political instability in the region continue or increase. These restrictions may limit materially our ability to sell our products and provide our services to companies and customers in these countries. In addition, there have been increased efforts by activists to cause companies and consumers to boycott Israeli goods and services. Such efforts, particularly if they become more widespread, may materially and adversely impact our ability to sell and provide our products and services outside of Israel.
Furthermore, following Hamas’ attack on Israel and Israel’s security cabinet declaration of war against Hamas, the Houthi movement, which controls parts of Yemen, launched a number of attacks on marine vessels traversing the Red Sea, which marine vessels were thought to either be in route towards Israel or to be partly owned by Israeli businessmen. The Red Sea is a vital maritime route for international trade traveling to or from Israel. As a result of such disruptions, we may experience in the future delays in supplier deliveries, extended lead times, and increased cost of freight, increased insurance costs, purchased materials and manufacturing labor costs. The risk of ongoing supply disruptions may further result in delayed deliveries of our products.
Prior to the Hamas attack in October 2023, the Israeli government pursued extensive changes to Israel’s judicial system, which sparked extensive political debate and unrest. In response to such initiative, many individuals, organizations and institutions, both within and outside of Israel, have voiced concerns that the proposed changes may negatively impact the business environment in Israel including due to reluctance of foreign investors to invest or transact business in Israel, as well as to increased currency fluctuations, downgrades in credit rating, increased interest rates, increased volatility in security markets and other changes in macroeconomic conditions. The risk of such negative developments has increased in light of the recent Hamas attacks and the war against Hamas declared by Israel, regardless of the proposed changes to the judicial system and the related debate. To the extent that any of these negative developments do occur, they may have an adverse effect on our business, our results of operations and our ability to raise additional funds, if deemed necessary by our management and board of directors.
Exchange rate fluctuations between foreign currencies and the U.S. Dollar may negatively affect our earnings.
Our reporting and functional currency is the U.S. dollar. Jeffs’ Brands and Gix Internet’s revenues are currently primarily payable in U.S. dollars, and we expect our future revenues to be denominated primarily in U.S. dollars. However, Eventer’s revenues and certain amount of our and Gix Internet’s expenses and investments are in NIS and as a result, we are exposed to the currency fluctuation risks relating to the recording of our expenses and Eventer’s revenues in U.S. dollars. We may, in the future, decide to enter into currency hedging transactions. These measures, however, may not adequately protect us from material adverse effects.
The government tax benefits that we currently are entitled to receive require us to meet several conditions and may be terminated or reduced in the future.
Some of our operations in Israel may entitle us to certain tax benefits under the Law for the Encouragement of Capital Investments, 5719-1959, or the Investments Law once we begin to produce taxable income. From time to time, the government of Israel has considered reducing or eliminating the tax benefits available to Benefitted Enterprise programs such as ours. If we do not meet the requirements for maintaining these benefits, they may be reduced or cancelled and the relevant operations would be subject to Israeli corporate tax at the standard rate, which was set at 23% in 2018 and thereafter. In addition to being subject to the standard corporate tax rate, we could be required to refund any tax benefits that we have already received, plus interest and penalties thereon. Even if we continue to meet the relevant requirements, the tax benefits that our current “Benefitted Enterprise” is entitled to may not be continued in the future at their current levels, or at all. If these tax benefits were reduced or eliminated, the amount of taxes that we will have to pay if we produce revenues would likely increase, as all of our operations would consequently be subject to corporate tax at the standard rate, which could adversely affect our results of operations. Additionally, if we increase our activities outside of Israel, for example, by way of acquisitions, our increased activities may not be eligible for inclusion in Israeli tax benefits programs. See Item 10. “Additional Information — E. Taxation.”
Provisions of Israeli law and our amended and restated articles of association 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.
Provisions of Israeli law and our amended and restated articles of association could have the effect of delaying or preventing a change in control and may make it more difficult for a third party to acquire us or our shareholders to elect different individuals to our board of directors, even if doing so would be considered to be beneficial by some of our shareholders, and may limit the price that investors may be willing to pay in the future for our Ordinary Shares. Among other things:
| ● | Israeli corporate law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvals for transactions involving directors, officers or significant shareholders and regulates other matters that may be relevant to such types of transactions. For example, a merger may not be consummated unless at least 50 days have passed from the date on which a merger proposal is filed by each merging company with the Israel Registrar of Companies and at least 30 days have passed from the date on which the shareholders of both merging companies have approved the merger. In addition, a majority of each class of securities of the target company must approve a merger. Moreover, a tender offer for all of a company’s issued and outstanding shares can only be completed if the acquirer receives positive responses from the holders of at least 95% of the issued share capital. Completion of the tender offer also requires approval of a majority of the offerees that do not have a personal interest in the tender offer, unless, following consummation of the tender offer, the acquirer would hold at least 98% of the Company’s outstanding shares. Furthermore, the shareholders, including those who indicated their acceptance of the tender offer, may, at any time within six months following the completion of the tender offer, claim that the consideration for the acquisition of the shares does not reflect their fair market value, and petition an Israeli court to alter the consideration for the acquisition accordingly, unless the acquirer stipulated in its tender offer that a shareholder that accepts the offer may not seek such appraisal rights, and the acquirer or the company published all required information with respect to the tender offer prior to the tender offer’s response date; |
| ● | our amended and restated articles of association divide our directors into three classes, each of which is elected once every three years; |
| ● | our amended and restated articles of association require a vote of the holders of a majority of our outstanding Ordinary Shares entitled to vote present and voting on the matter at a general meeting of shareholders (referred to as simple majority). The affirmative vote of at least three-quarters (3/4) of the directors, in addition to the approval of our shareholders, is required in order to amend our amended and restated articles of association; |
| ● | our amended and restated articles of association provide that director vacancies may be filled by our board of directors; |
| ● | subject to certain exceptions, our amended and restated articles of association restrict us from engaging in certain business combination transactions with any shareholder and/or its affiliates and/or investors for a period of three years following (i) any shareholder who holds 15% or more of our voting power, and (ii) with respect to all shareholders of the Company, each time as such shareholder and/or any of its affiliates and/or investors become(s) (other than due to a buyback, redemption or cancellation of shares by the Company) the holder(s) (beneficially or of record) of fifteen percent (15%) or more of the issued and outstanding voting power of our Ordinary Shares. The transactions subject to such restrictions include mergers, consolidations and dispositions of our assets with an aggregate market value of 10% or more of our assets or outstanding shares; and |
| ● | our amended and restated articles of association require an affirmative vote of at least three-quarters (3/4) of the then serving directors, to approve certain transactions which may have a significant effect on the Company’s structure, assets or business, including mergers acquisitions, consolidations and issuance of equity securities or debt securities convertible into equity in each case that would reasonably be expected to result in change of beneficial ownership of above than fifteen percent (15%) in the Company, material changes to the principal business of the Company and any resolution to transfer the headquarters of the Company outside of Israel. |
Furthermore, Israeli tax considerations may make potential transactions unappealing to us or to our shareholders whose country of residence does not have a tax treaty with Israel exempting such shareholders from Israeli tax.
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 judgment of a U.S. court against us and our officers and directors and the Israeli experts named in this annual report on Form 20-F in Israel or the United States, to assert United States securities laws claims in Israel or to serve process on our officers and directors and these experts.
We are incorporated in Israel. Certain of our executive officers and directors reside in Israel and most of our assets and most of the assets of these persons are located outside of the United States. Therefore, a judgment obtained against us, or any of these persons in the United States, including one based on the civil liability provisions of the U.S. federal securities laws, may not be collectible in the United States and may not necessarily be enforced by an Israeli court. It may also be difficult to affect service of process on these persons in the United States or to assert United States securities law claims in original actions instituted in Israel.
Even if an Israeli court agrees to hear such claim, it may determine that Israeli law, and not U.S. law is applicable to the claim. Under Israeli law, if U.S. law is found to be applicable to such claim, the content of applicable U.S. law must be proven as a fact by expert witnesses, which can be a time consuming and costly process, and certain matters of procedure would also be governed by Israeli law. There is little binding case law in Israel that addresses the matters.
Our amended and restated articles of association provide that unless the Company consents otherwise, the competent courts of Tel Aviv, Israel shall be the sole and exclusive forum for substantially all disputes between the Company and its shareholders under the Companies Law and the Israeli Securities Law, which could limit its shareholders ability to brings claims and proceedings against, as well as obtain favorable judicial forum for disputes with the Company, its directors, officers and other employees.
The competent courts of Tel Aviv, Israel shall be the exclusive forum for (i) any derivative action or proceeding brought on behalf of the Company, (ii) any action asserting a claim of breach of fiduciary duty owed by any director, officer or other employee of the Company to the Company or the Company’s shareholders, or (iii) any action asserting a claim arising pursuant to any provision of the Companies Law or the Israeli Securities Law. This exclusive forum provision is intended to apply to claims arising under Israeli Law and would not apply to claims brought pursuant to the Securities Act or the Exchange Act or any other claim for which federal courts would have exclusive jurisdiction. Such exclusive forum provision in our amended and restated articles of association will not relieve the Company of its duties to comply with federal securities laws and the rules and regulations thereunder, and shareholders of the Company will not be deemed to have waived the Company’s compliance with these laws, rules and regulations. This exclusive forum provision may limit a shareholder’s ability to bring a claim in a judicial forum of its choosing for disputes with the Company or its directors or other employees which may discourage lawsuits against the Company, its directors, officers and employees.
The rights and responsibilities of a shareholder will be governed by Israeli law which differs in some material respects from the rights and responsibilities of shareholders of U.S. companies.
The rights and responsibilities of the holders of our Ordinary Shares are governed by our amended and restated articles of association and by Israeli law. These rights and responsibilities differ in some material respects from the rights and responsibilities of shareholders in typical U.S.-registered corporations. In particular, a shareholder of an Israeli company has certain duties to act in good faith and fairness towards the company and other shareholders, and to refrain from abusing its power in the company. There is limited case law available to assist us in understanding the nature of this duty or the implications of these provisions. These provisions may be interpreted to impose additional obligations and liabilities on holders of our Ordinary Shares that are not typically imposed on shareholders of U.S. corporations.
The ability of any Israeli company to pay dividends is subject to Israeli law and the amount of cash dividends payable may be subject to devaluation in the Israeli currency.
We paid cash dividends in an amount of $1.6 million on December 28, 2022. We do not anticipate that we will pay any cash dividends on our securities in the foreseeable future. The ability of an Israeli company to pay dividends is governed by Israeli law, which provides that cash dividends may be paid only out of retained earnings or earnings derived over the two most recent fiscal years, whichever is higher, as determined for statutory purposes in Israeli currency, provided that there is no reasonable concern that payment of a dividend will prevent a company from satisfying its existing and foreseeable obligations as they become due. In the event of a devaluation of the Israeli currency against the U.S. dollar, the amount in U.S. dollars available for payment of cash dividends out of prior years’ earnings will decrease.
The termination or reduction of tax and other incentives that the Israeli Government provides to domestic companies may increase the costs involved in operating a company in Israel.
The Israeli government currently provides major tax and capital investment incentives to domestic companies, as well as grant and loan programs relating to research and development and marketing and export activities. In recent years, the Israeli Government has reduced the benefits available under these programs and the Israeli Governmental authorities have indicated that the government may in the future further reduce or eliminate the benefits of those programs. We currently take advantage of these programs. There is no assurance that such benefits and programs would continue to be available in the future to us. If such benefits and programs were terminated or further reduced, it could have an adverse effect on our business, operating results and financial condition.
We may become subject to claims for remuneration or royalties for assigned service invention rights by our employees, which could result in litigation and adversely affect our business.
A significant portion of our intellectual property has been developed by our employees in the course of their employment for us. Under the Israeli Patent Law, 5727-1967, or the Patent Law, inventions conceived by an employee in the course and as a result of or arising from his or her employment with a company are regarded as “service inventions,” which belong to the employer, absent a specific agreement between the employee and employer giving the employee service invention rights. The Patent Law also provides that if there is no such agreement between an employer and an employee, the Israeli Compensation and Royalties Committee, or the Committee, a body constituted under the Patent Law, will determine whether the employee is entitled to remuneration for his inventions. Recent case law clarifies that the right to receive consideration for “service inventions” can be waived by the employee and that in certain circumstances, such waiver does not necessarily have to be explicit. The Committee will examine, on a case-by-case basis, the general contractual framework between the parties, using interpretation rules of the general Israeli contract laws. Further, the Committee has not yet determined one specific formula for calculating this remuneration (but rather uses the criteria specified in the Patent Law). Although we generally enter into assignment-of-invention agreements with our employees pursuant to which such individuals assign to us all rights to any inventions created in the scope of their employment or engagement with us, we may face claims demanding remuneration in consideration for assigned inventions. As a consequence of such claims, we could be required to pay additional remuneration or royalties to our current and/or former employees, or be forced to litigate such claims, which could negatively affect our business.
Risks Related to an Investment Our Securities
There can be no assurance that we will not be a passive foreign investment company, or PFIC, for U.S. federal income tax purposes in 2024 or in any subsequent year. If we are a PFIC, this may result in adverse U.S. federal income tax consequences for U.S. taxpayers that are holders of our securities.
We will generally be treated as a PFIC for U.S. federal income tax purposes in any taxable year in which either (1) at least 75% of our gross income is “passive income” or (2) on average at least 50% of our assets by value (generally determined on the basis of a quarterly average) produce passive income or are held for the production of passive income. Passive income for this purpose generally includes, among other things, certain dividends, interest, royalties, rents and gains from commodities and securities transactions and from the sale or exchange of property that gives rise to passive income. Passive income also includes amounts derived by reason of the temporary investment of funds, including those raised in a public offering. In determining whether a non-U.S. corporation is a PFIC, a proportionate share of the income and assets of each corporation in which it owns, directly or indirectly, at least a 25% interest (by value) is taken into account. Based on our anticipated income and the composition of our income and assets, we do not believe we were a PFIC for our 2023 taxable year. Because the PFIC determination is highly fact intensive, there can be no assurance that we were not a PFIC in 2023 and will not be a PFIC in 2024 or any other year, as our operating results for any such years may cause us to be a PFIC. If we were a PFIC in 2023, or are a PFIC in any subsequent year, and a U.S. shareholder does not make an election to treat us as a “qualified electing fund,” or QEF, or make a “mark-to-market” election, then “excess distributions” to a U.S. shareholder, and any gain realized on the sale or other disposition of our securities will be subject to special rules. Under these rules: (1) the excess distribution or gain would be allocated ratably over the U.S. shareholder’s holding period for the securities; (2) the amount allocated to the current taxable year and any period prior to the first day of the first taxable year in which we were a PFIC would be taxed as ordinary income; and (3) the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for that year, and an interest charge for the deemed deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year. In addition, if the U.S. Internal Revenue Service, or the IRS, determines that we are a PFIC for a year with respect to which we have determined that we were not a PFIC, it may be too late for a U.S. shareholder to make a timely QEF or mark-to-market election. You may make a QEF election with respect to your Ordinary Shares or ADSs only if we furnish you annually with certain tax information, and we currently do not intend to prepare or provide such information. U.S. shareholders who hold or have held our securities during a period when we were or are a PFIC will generally be subject to the foregoing rules unless we cease to be a PFIC and you make a “deemed sale” election with respect to our Ordinary Shares. If we are a PFIC in any year, U.S. shareholders may be subject to additional IRS filing requirements, including the filing of IRS Form 8621, as a result of directly or indirectly owning stock of a PFIC. U.S. shareholders are urged to consult their own tax advisors regarding the application of the PFIC rules. For more information, see Item 10. “Additional Information — Taxation — Certain Material U.S. Federal Income Tax Consequences.”
If a United States person is treated as owning at least 10% of our Ordinary Shares, such holder may be subject to adverse U.S. federal income tax consequences.
If a United States person is treated as owning (directly, indirectly, or constructively) at least 10% of the value or voting power of our Ordinary Shares, such person may be treated as a “United States shareholder” with respect to each controlled foreign corporation, or CFC, in our group (if any). Because our group includes a U.S. subsidiary, certain of our non-U.S. subsidiaries will be treated as CFCs (regardless of whether or not we are treated as a CFC). A United States shareholder of a CFC may be required to report annually and include in its U.S. taxable income its pro rata share of “Subpart F income,” “global intangible low-taxed income,” and investments in U.S. property by CFCs, regardless of whether we make any distributions. An individual that is a United States shareholder with respect to a CFC generally would not be allowed certain tax deductions or foreign tax credits that would be allowed to a United States shareholder that is a U.S. corporation. Failure to comply with these reporting obligations may subject a United States shareholder to significant monetary penalties and may prevent the statute of limitations with respect to such shareholder’s U.S. federal income tax return for the year for which reporting was due from starting. We cannot provide any assurances that we will assist investors in determining whether we are or any of our non-U.S. subsidiaries is treated as CFC or whether any investor is treated as a United States shareholder with respect to any such CFC or furnish to any United States shareholders information that may be necessary to comply with the aforementioned reporting and tax paying obligations. The IRS has provided limited guidance on situations in which investors may rely on publicly available information to comply with their reporting and tax paying obligations with respect to foreign-controlled CFCs. A United States investor should consult its advisors regarding the potential application of these rules to an investment in our Ordinary Shares or ADSs.
Changes in U.S. and foreign tax laws could have a material adverse effect on our business, cash flow, results of operations or financial conditions.
We are subject to taxation in several countries, including the United States and Israel; changes in tax laws or challenges to our tax positions could adversely affect our business, results of operations, and financial condition. As such, we are subject to tax laws, regulations, and policies of the U.S. federal, state, and local governments and of comparable taxing authorities in foreign jurisdictions. Changes in tax laws, including the U.S. federal tax legislation enacted in 2017, commonly referred to as the Tax Cuts and Jobs Act of 2017, as well as other factors, could cause us to experience fluctuations in our tax obligations and effective tax rates in the future and otherwise adversely affect our tax positions and/or our tax liabilities. There can be no assurance that our effective tax rates, tax payments, tax credits, or incentives will not be adversely affected by changes in tax laws in various jurisdictions.
The market prices of our securities are subject to fluctuation, which could result in substantial losses by our investors.
The stock market in general and the market prices of our ADSs on Nasdaq, in particular, are or will be subject to fluctuation, and changes in these prices may be unrelated to our operating performance. We anticipate that the market prices of our securities will continue to be subject to wide fluctuations. The market price of our securities is, and will be, subject to a number of factors, including:
| ● | announcements of technological innovations or new products by us or others; |
| ● | announcements by us of significant acquisitions, strategic partnerships, in-licensing, out-licensing, ventures or capital commitments; |
| ● | expiration or terminations of licenses, research contracts or other collaboration agreements; |
| ● | public concern as to the safety of the equipment we sell; |
| ● | the volatility of market prices for shares of medical devices companies generally; |
| ● | developments concerning intellectual property rights or regulatory approvals; |
| ● | variations in our and our competitors’ results of operations; |
| ● | changes in revenues, gross profits and earnings announced by the Company; |
| ● | changes in estimates or recommendations by securities analysts, if our Ordinary Shares or the ADSs are covered by analysts; |
| ● | fluctuations in the stock price of our publicly traded subsidiaries; |
| ● | changes in government regulations or patent decisions; and |
| ● | general market conditions and other factors, including factors unrelated to our operating performance. |
These factors may materially and adversely affect the market price of our securities s and result in substantial losses by our investors.
We do not know whether a market for the ADSs will be sustained or what the trading price of the ADSs will be and as a result it may be difficult for you to sell your ADSs.
Although our ADSs trade on Nasdaq, an active trading market for the ADSs may not be sustained. It may be difficult for you to sell your ADSs without depressing the market price for the ADSs. As a result of these and other factors, you may not be able to sell your ADSs. Further, an inactive market may also impair our ability to raise capital by selling ADSs and may impair our ability to enter into strategic partnerships or acquire companies or products by using our ADSs as consideration.
Future sales of our securities could reduce their market price.
Substantial sales of our securities on Nasdaq, may cause the market price of our securities to decline. Sales by us or our security holders of substantial amounts of our securities, or the perception that these sales may occur in the future, could cause a reduction in the market price of our securities.
The issuance of any additional Ordinary Shares, ADSs, warrants or any securities that are exercisable for or convertible into our Ordinary Shares or ADSs, may have an adverse effect on the market price of our securities and will have a dilutive effect on our existing shareholders and holders of ADSs.
Holders of ADSs may not receive the same distributions or dividends as those we make to the holders of our Ordinary Shares, and, in some limited circumstances, you may not receive dividends or other distributions on our Ordinary Shares and you may not receive any value for them, if it is illegal or impractical to make them available to you.
The depositary for the ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on Ordinary Shares or other deposited securities underlying the ADSs, after deducting its fees and expenses. You will receive these distributions in proportion to the number of Ordinary Shares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holders of ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act of 1933, as amended, or the Securities Act, but that are not properly registered or distributed under an applicable exemption from registration. In addition, conversion into U.S. dollars from foreign currency that was part of a dividend made in respect of deposited Ordinary Shares may require the approval or license of, or a filing with, any government or agency thereof, which may be unobtainable. In these cases, the depositary may determine not to distribute such property and hold it as “deposited securities” or may seek to affect a substitute dividend or distribution, including net cash proceeds from the sale of the dividends that the depositary deems an equitable and practicable substitute. We have no obligation to register under U.S. securities laws any ADSs, Ordinary Shares, rights or other securities received through such distributions. We also have no obligation to take any other action to permit the distribution of ADSs, Ordinary Shares, rights or anything else to holders of ADSs. In addition, the depositary may withhold from such dividends or distributions its fees and an amount on account of taxes or other governmental charges to the extent the depositary believes it is required to make such withholding. This means that you may not receive the same distributions or dividends as those we make to the holders of our Ordinary Shares, and, in some limited circumstances, you may not receive any value for such distributions or dividends if it is illegal or impractical for us to make them available to you. These restrictions may cause a material decline in the value of the ADSs.
Holders of ADSs must act through the depositary to exercise their rights as shareholders of our Company.
Holders of our ADSs do not have the same rights as our shareholders and may only exercise the voting rights with respect to the underlying Ordinary Shares in accordance with the provisions of the Deposit Agreement. Under Israeli law and our amended and restated articles of association, the minimum notice period required to convene a shareholders meeting is no less than 21 or 35 calendar days, depending on the proposals on the agenda for the shareholders meeting. When a shareholder meeting is convened, holders of ADSs may not receive sufficient notice of a shareholders’ meeting to permit them to withdraw their Ordinary Shares to allow them to cast their vote with respect to any specific matter. In addition, the Depositary and its agents may not be able to send voting instructions to holders of ADSs or carry out their voting instructions in a timely manner. We will make all reasonable efforts to cause the Depositary to extend voting rights to holders of the ADSs in a timely manner, but we cannot assure holders that they will receive the voting materials in time to ensure that they can instruct the Depositary to vote their Ordinary Shares underlying the ADSs. Furthermore, the Depositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of any such vote. As a result, holders of ADSs may not be able to exercise their right to vote and they may lack recourse if their Ordinary Shares underlying the ADSs are not voted as they requested. In addition, in the capacity as a holder of ADSs, they will not be able to call a shareholders’ meeting.
We incur additional increased costs as a result of the listing of the ADSs for trading on Nasdaq, and our management is required to devote substantial time to new compliance initiatives and reporting requirements.
As a public company in the United States, we incur significant accounting, legal and other expenses as a result of the listing of the ADSs on Nasdaq. These include costs associated with corporate governance requirements of the Securities Exchange Commission, or the SEC, and the Marketplace Rules of the Nasdaq, as well as requirements under Section 404 and other provisions of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act. These rules and regulations increase our legal and financial compliance costs, introduce costs such as investor relations, stock exchange listing fees and shareholder reporting, and make some activities more time consuming and costly. Any future changes in the laws and regulations affecting public companies in the United States and Israel, including Section 404 and other provisions of the Sarbanes-Oxley Act, the rules and regulations adopted by the SEC and the rules of the Nasdaq Stock Market may result in increased costs to us as we respond to such changes. These laws, rules and regulations could make it more difficult or more costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers.
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 the rules of the Nasdaq for domestic issuers. Following our home country governance practices as opposed to the requirements that would otherwise apply to a U.S. company listed on the Nasdaq, may provide less protection than is accorded to investors under the rules of the Nasdaq applicable to domestic issuers. For more information, see “Item 16G. Corporate Governance - Nasdaq Stock Market Listing Rules and Home Country Practices.”
In addition, as a foreign private issuer, we are exempt from the rules and regulations under the Securities Exchange Act of 1934, as amended, or 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.
We may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses.
We are a foreign private issuer, as such term is defined in Rule 405 under the Securities Act, and therefore, we are not required to comply with all the periodic disclosure and current reporting requirements of the Exchange Act and related rules and regulations. Under Rule 405, the determination of foreign private issuer status is made annually on the last business day of an issuer’s most recently completed second fiscal quarter and, accordingly, the next determination will be made with respect to us on June 30, 2024.
In the future, we would lose our foreign private issuer status if a majority of our shareholders, directors or management are U.S. citizens or residents, and we fail to meet additional requirements necessary to avoid loss of foreign private issuer status. Although we have elected to comply with certain U.S. regulatory provisions, our loss of foreign private issuer status would make such provisions mandatory. The regulatory and compliance costs to us under U.S. securities laws as a U.S. domestic issuer may be significantly higher. If we are not a foreign private issuer, we will be required to file periodic reports and registration statements on U.S. domestic issuer forms with the U.S. Securities and Exchange Commission, or the SEC, which are more detailed and extensive than the forms available to a foreign private issuer. For example, the annual report on Form 10-K requires domestic issuers to disclose executive compensation information on an individual basis with specific disclosure regarding the domestic compensation philosophy, objectives, annual total compensation (base salary, bonus, equity compensation) and potential payments in connection with change in control, retirement, death or disability, while the SEC forms applicable to foreign private issuers permit them to disclose compensation information on an aggregate basis if executive compensation disclosure on an individual basis is not required or otherwise has not been provided in the issuer’s home jurisdiction. We disclose individual compensation information, but this disclosure is not as comprehensive as that required of U.S. domestic issuers since we are not required to disclose more detailed information in Israel. We intend to continue this practice as long as it is permitted under the SEC’s rules and Israel’s rules do not require more detailed disclosure. We will also have to mandatorily comply with U.S. federal proxy requirements, and our officers, directors and principal shareholders will become subject to the short-swing profit disclosure and recovery provisions of Section 16 of the Exchange Act. We may also be required to modify certain of our policies to comply with good governance practices associated with U.S. domestic issuers. Such conversion and modifications will involve additional costs. In addition, we may lose our ability to rely upon exemptions from certain corporate governance requirements on U.S. stock exchanges that are available to foreign private issuers.
If we fail to develop and maintain proper and effective internal controls over financial reporting, our ability to produce timely and accurate financial statements, comply with applicable laws and regulations, or access the capital markets could be impaired.
As a public company, we are actively evaluating our internal control over financial reporting in a manner that meets the standards of publicly traded companies required by Section 404(a) of the Sarbanes-Oxley Act, or Section 404. As disclosed in Item 15, our management concluded that, as of December 31, 2023, the Company’s internal controls over financial reporting were effective.
The process of designing and implementing effective internal control over financial reporting is a continuous effort. If our management cannot favorably assess the effectiveness of our internal controls over financial reporting, or if our independent registered public accounting firm identifies material weaknesses in our internal control, investor confidence in our financial results may weaken, and the market price of our securities may suffer.
Our amended and restated articles of association provide that unless we consent to an alternate forum, the federal district courts of the United States shall be the exclusive forum of resolution of any claims arising under the Securities Act which may impose additional litigation costs on our shareholders.
Our amended and restated articles of association provide that the federal district courts of the United States shall be the exclusive forum for the resolution of any complaint asserting a cause or causes of action arising under the Securities Act, including all causes of action asserted against any defendant to such complaint. Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all such Securities Act actions. Accordingly, both U.S. state and federal courts have jurisdiction to entertain such claims. This choice of forum provision may limit a shareholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees and may increase the costs associated with such lawsuits, which may discourage such lawsuits against us and our directors, officers and employees. Alternatively, if a court were to find these provisions of our amended and restated articles of association inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business and financial condition. Any person or entity purchasing or otherwise acquiring any interest in our share capital shall be deemed to have notice of and to have consented to the choice of forum provisions of our amended and restated articles of association described above. This provision would not apply to shall not apply to causes of action arising under the Exchange Act.
General Risk Factors
We do not intend to pay any cash dividends on our Ordinary Shares in the foreseeable future and, therefore, any return on your investment in our securities must come from increases in the value and trading price of our securities.
We paid cash dividends in an amount of $1.6 million on December 28, 2022. We do not anticipate that we will pay any cash dividends on our securities in the foreseeable future, therefore, any return on your investment in our securities must come from increases in the value and trading price of our securities.
We intend to retain our earnings to finance the development and expenses of our business. Any future determination relating to our dividend policy will be at the discretion of our board of directors and will depend on a number of factors, including future earnings, our financial condition, operating results, contractual restrictions, capital requirements, business prospects, applicable Israeli law and other factors our board of directors may deem relevant.
Raising additional capital by issuing securities may cause dilution to existing shareholders.
We may seek additional capital through a combination of private and public equity offerings, debt financings and collaborations and strategic and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest will be diluted, and the terms of any such offerings may include liquidation or other preferences that may adversely affect the then existing shareholders rights. Debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include covenants limiting or restricting our ability to take specific actions such as incurring debt or making capital expenditures. If we raise additional funds through collaboration, strategic alliance or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams or product candidates, or grant licenses on terms that are not favorable to us.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our share price and trading volume could decline.
The trading market for our securities will depend on the research and reports that securities or industry analysts publish about us or our business. We do not have any control over these analysts. There can be no assurance that analysts will cover us or provide favorable coverage. If one or more analysts downgrade our shares or change their opinion of our securities, the price of our securities would likely decline. In addition, if one or more analysts cease coverage of our Company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our share price or trading volume to decline.
Increased attention to, and evolving expectations for, environmental, social, and governance (ESG) initiatives could adversely impact our business.
In June 2022, the SEC published a proposed climate disclosure rule, subject to which we would be required to disclose certain climate-related information such as governance of climate-related risks and relevant risk management processes that could affect us, a climate related financial statements matrix and more. While the proposed rule has yet to be finalized and we cannot predict the ultimate scope and impact this will have on our business, if finalized, it would likely result in additional legal, accounting and financial compliance and increased general and administrative expenses. Moreover, this could result in increased management time and attention to ensure we are compliant with the regulations and expectations.
ITEM 4. INFORMATION ON THE COMPANY
A. History and Development of the Company
We were incorporated in the State of Israel on December 9, 1999, as a private company pursuant to the Israeli Companies Ordinance (New Version), 1983. In February 2006, we completed our initial public offering in Israel, and our Ordinary Shares traded on the TASE until January 25, 2021. In May 2015, we listed the ADSs on Nasdaq and since August 2015 the ADSs have been traded on Nasdaq under the symbol “MDGS”. Following a 20:1 reverse share split of our ordinary shares effected on July 7, 2022, together with a 1:15 ratio change of the ADSs on November 14, 2022 (the “Ratio Change”), each ADS represents fifteen (15) Ordinary Shares. On March 6, 2024, our shareholders approved an amendment to our Articles of Association for our board of directors to implement a name change of our company to Xylo Technologies Ltd., or any other name as will be approved by the Registrar of Companies, which our board of directors believes may better reflect future business expansion. The name change became effective on April 1, 2024, and symbol change became effective on April 18, 2024.
Principal Capital Expenditures
Our Group had capital expenditures of approximately $51,000, $74,000 and $141,000 in the years ended on December 31, 2023, 2022, and 2021, respectively. Our capital expenditures are primarily for network infrastructure, computer hardware, purchase of machinery and software and leasehold improvements of our facilities. We have financed our capital expenditures from our available cash. We expect to maintain our capital expenditures in 2024 with a consistent volume.
There are no significant capital expenditures or divestitures currently in progress by the Company.
B. Business Overview
Overview
The activities carried out by us and our subsidiaries are focused on internet and other online-related technologies, e-commerce, medical-related devices, products and safety systems for drones and the electric vehicle (EV) sector.
Our internet-related activities include ad-tech operations through our stake in Gix Internet in which as of December 31, 2023, we held 45.75% of its outstanding share capital. Our internet related activities also include our investment in Eventer, an online – event management and ticketing platform in which we held, as of December 31, 2023, 46.21% of its outstanding share capital.
Our e-commerce activity includes the operations of Jeffs’ Brands Ltd., in which we held, as of December 31, 2023, 34.11% of its outstanding share capital, and which operates online stores for the sale of various consumer products on the Amazon online marketplace.
Our medical related activities include: innovative surgical devices with direct visualization capabilities for the treatment of Gastroesophageal Reflux Disease using Ultrasonic Surgical Endostapler, or MUSE and Polyrizon’s development of biological gels designed to protect patients against biological threats and reduce intrusion of allergens and viruses through the upper airways and eye cavities.
Our activity in the EV sector includes our ownership of Charging Robotics Ltd. (“Charging Robotics”) and its 19.99% subsidiary Revoltz, developing both wireless vehicle battery charging technology and three modular EVs. On April 7, 2023, Charging Robotics consummated a share exchange transaction, whereby it became a wholly owned subsidiary of Fuel Doctor. As a result, we now hold 67% of the outstanding share capital of Fuel Doctor, with an option to increase our holdings to 71% of the outstanding share capital based on predetermined milestones.
Our activity in the drone products and safety field is conducted through our stake in Parazero Technologies Ltd. (“Parazero”) in which we held, as of December 31, 2023, 20.04% of its outstanding share capital.
Internet and other online related Activity Overview
Gix Internet – Ad-Tech and Online Advertising
Gix Internet is the parent of Viewbix Inc. a publicly traded company (OTC: VBIX) (“Viewbix”) which is the majority shareholder of Gix Media Ltd. following a corporate reorganization that was consummated on September 19, 2022 (the “Reorganization Transaction”). Gix Media Ltd., is the majority holder of Cortex Media Group Ltd., a digital advertising platform that develops and markets a variety of technological platforms that automate, optimize and monetize digital online campaigns.
We consolidated Gix Internet’s financial statements as of February 28, 2022.
As of December 31, 2023, we held 45.75% of Gix Internet’s outstanding share capital. We have an option to increase our stake in Gix Internet to 48.11% of its outstanding share capital. The options are exercisable at a price of NIS 2.5 per share and set to expire on December 19, 2024.
Eventer Technologies Ltd. – Online Event Management
Eventer is a technology company engaged in the development of unique tools for automatic creation, management, promotion, and billing of events and ticketing sales. Eventer seeks to tap the growing demand for enterprise and private online communication. As such, Eventer’s systems offer and enable advanced, user-friendly solutions for online events such as online concerts, enterprise events and online conferences, in addition to management and ticket sales for events carried out in offline venues. In addition, Eventer’s platform provides individuals with the ability to create and sell tickets to custom small-scale private or public events. Eventer’s revenues are derived from commissions from sales of tickets for online and offline events planned and managed through its platform.
As of December 31, 2023, we held 46.21% of Eventer’s outstanding share capital.
E-commerce Activity Overview
Jeffs’ Brands Ltd.
Jeffs’ Brands (Nasdaq: JFBR) is an e-commerce consumer products goods, or CPG, company, operating primarily on Amazon platform. Jeffs’ Brands has five wholly-owned subsidiaries: Smart Repair Pro, Top Rank Ltd., or Top Rank, Fort Products Ltd., or Fort, Jeffs’ Brands Holdings Inc., or Jeffs’ Brands Holdings and Fort Products LLC. Jeffs’ Brands also own a minority interest in SciSparc Nutraceuticals Inc. or SciSparc U.S. that operate online stores for the sale of various consumer products on the Amazon online marketplace, utilizing the Fulfillment by Amazon, or FBA, model. In addition to executing the FBA business model, Jeffs’ Brands utilizes artificial intelligence, or A.I., and machine learning technologies to analyze sales data and patterns on Amazon platform in order to identify existing stores, niches and products that have the potential for development and growth, and for maximizing sales of existing proprietary products.
On August 30, 2022, we participated in Jeffs’ Brands initial public offering on Nasdaq.
As of December 31, 2023, we held 34.11% of Jeffs’ Brands issued and outstanding share capital. As of the date of this annual report we hold 6.32% of Jeffs’ Brands’ outstanding share capital. We have 34,341 warrants to purchase up to 34,341 ordinary shares with an exercise price of $14.14 per ordinary share and an additional 34,341 unlisted warrants to purchase up to 34,341 ordinary shares with an exercise price of $14.11 per ordinary share.
Medical Activity Overview
Our MUSE™ System
We have been engaged in the development, production and marketing of innovative surgical devices with direct visualization capabilities for the treatment of Gastroesophageal Reflux Disease, a common ailment, which is predominantly treated by medical therapy (e.g. proton pump inhibitors) or in chronic cases, conventional open or laparoscopic surgery. Our product, the MUSE™ system for transoral fundoplication is a single use innovative device for the treatment of GERD disorder. The MUSE™ system is an endoscopic, incisionless solution that is used to perform a procedure as an alternative to a surgical fundoplication.
On June 3, 2019, we entered into the Golden Grand Agreement for the know-how licensing and sale of good relating to the MUSE™ system in China, Hong Kong, Taiwan and Macao. Four out of five predetermined milestones in the Golden Grand Agreement were completed during 2020 and 2021, and consequently 80% of the agreed payments were already transferred to us. The parties are having difficulty completing the last milestone and are currently discussing how to resolve the issue.
Polyrizon – Protective Biological Gels
Polyrizon is a clinical development biotech company specializing in the development of innovative nasal gels to provide preventative treatment against a wide cross section of viruses, as well as bacteria, allergens, and other toxins. Polyrizon’s proprietary Capture and Contain hydrogel platform is delivered in the form of nasal spray, and forms a thin gel-based protective shield containment barrier in the nasal cavity.
As of December 31, 2023, we held 38.76% of Polyrizon’s outstanding share capital.
Electric Vehicle Activity Overview
Charging Robotics Ltd.
We invested in Charging Robotics, which was previously our wholly owned subsidiary. Charging Robotics is developing an autonomous wireless charging system for electric vehicles. On March 28, 2023, the Company entered into a securities exchange agreement (the “Exchange Agreement”) with Fuel Doctor. Pursuant to the Exchange Agreement, at the closing, which occurred on April 7, 2023, Fuel Doctor acquired 100% of the issued and outstanding share capital of Charging Robotics, making Charging Robotics a wholly-owned subsidiary of Fuel Doctor, in exchange for the issuance of shares of the Fuel Doctor’s common stock. As a result, Charging Robotics became a subsidiary of Fuel Doctor and as of December 31, 2023, we held 67% of Fuel Doctor’s outstanding share capital, with an option to increase our holdings to up to 71% of its outstanding share capital based on pre-set milestones.
Revoltz Ltd.
On February 19, 2021, Charging Robotics entered into a joint venture agreement with Amir Zaid, Weijian Zhou and Charging Robotics, for the purpose of developing and commercializing three modular electric vehicle (EV) micro mobility vehicles for urban individual use and “last mile” cargo delivery, through a new subsidiary, Revoltz Ltd. (“Revoltz”) Pursuant to the terms of such agreement, Charging Robotics was issued 19.99% of the issued and outstanding share capital of Revoltz.
Fuel Doctor Holdings, Inc.
As of December 31, 2023, we held 67% of Fuel Doctor, which we acquired through a securities exchange agreement (the “Exchange Agreement”), by and between our previously majority owned subsidiary, Charging Robotics and Fuel Doctor consummated on April 7, 2023. Pursuant to the Exchange Agreement, at closing, Fuel Doctor acquired 100% of the issued and outstanding share capital of Charging Robotics, making Charging Robotics a wholly-owned subsidiary of Fuel Doctor, in exchange for the issuance of shares of Fuel Doctor’s common stock. As a result, Charging Robotics became a subsidiary of Fuel Doctor and we now hold 67% of Fuel Doctor’s outstanding share capital, with an option to increase our holdings to up to 71% of its outstanding share capital based on pre-set milestones.
Other Activities
Parazero Ltd.
In 2022 we made multiple investments in Parazero, a company specializing in drone safety systems, through various transactions. As of December 31, 2023, we held 20.04% of Parazero’s issued and outstanding share capital. Parazero develops and provides drone safety solutions designed to protect people and payloads, providing a solution to reduce the risk of a drone’s malfunction in an urban environment.
Parazero completed its IPO on Nasdaq on July 28, 2023, and on October 30, 2023, closed a private placement transaction.
Zig Miami 54 LLC
On September 13, 2023, we signed an operating agreement with Zig Investment Group LLC (“Zig Investment Group”), a Florida limited liability company, pursuant to which they formed a company, under the name Zig Miami 54 LLC (“Zig Miami 54”), a Florida limited liability company. The purpose of Zig Miami 54 is to acquire, improve, renovate, develop, manage, sell and otherwise deal with a commercial property located in Miami, Florida. The rights of Zig Miami 54 are exercised by Zig Investment Group, and the business and affairs of Zig Miami 54 are managed under the direction of Zig Investment Group (the “Manager”). As of December 31, 2023, we held 60% of Zig Miami 54’s issued and outstanding share capital.
Our Strategy
Our primary goal is to generate revenues through the activities of our consolidated subsidiaries, each in their respective market and field. In addition, we seek to generate revenues by pursuing potential opportunities to sell our MUSE™ technology, or alternatively grant a license or licenses for the use of the MUSE™ technology. Our strategy includes the following key elements:
Commercialization of the products and services provided by our consolidated subsidiaries as well as achieving organic growth and profitability. Our board of directors has determined to support the growth, development and expansion of our consolidated subsidiaries businesses.
Sell or License MUSE™ technology. Our board of directors has determined to examine potential opportunities to sell our MUSE™ technology, or alternatively grant a license or licenses for the use of the MUSE™ technology.
General Pursuit of Opportunities. Our board of directors and management are constantly seeking and pursuing opportunities through which to leverage our assets and capabilities.
A substantial material portion of our revenues in 2023 and 2022 derived from Gix Internet, Jeffs’ Brands and Eventer. In 2021 revenues derived from Jeffs’ Brands, Eventer and from the licensing and sale agreement The following data reflects our total revenue arising from the following services:
| Revenues | ||||||||||||
| Year Ended December 31, | ||||||||||||
| 2023 | 2022 | 2021 | ||||||||||
| (Thousands of U.S. dollars) | ||||||||||||
| Miniature camera and related equipment (from Odysight.ai) | - | - | 24 | |||||||||
| Revenues from sale of products (from Jeffs’ Brands) | 10,008 | 5,861 | 6,509 | |||||||||
| Revenues from internet services (from Gix Internet) | 79,613 | (*)83,532 | ||||||||||
| Revenues from commissions (from Eventer Technologies) | 2,103 | 2,465 | 1,185 | |||||||||
| MUSE and related equipment (from Xylo Technologies) | - | - | 2,400 | |||||||||
| Total | 91,724 | 91,858 | 10,118 | |||||||||
| (*) | Gix Internet was consolidated as of February 28, 2022. |
The following data reflects our total revenue broken down by geographic region:
| Revenues | ||||||||||||
| Year Ended December 31, | ||||||||||||
| 2023 | 2022 | 2021 | ||||||||||
| (Thousands of U.S. dollars) | ||||||||||||
| United States | 49,954 | 52,129 | 6,307 | |||||||||
| Europe | 19,285 | 21,731 | 127 | |||||||||
| Great Britain | 5,628 | 166 | - | |||||||||
| Israel | 15,653 | 15,266 | 1,183 | |||||||||
| Canada | 944 | 385 | 100 | |||||||||
| Asia | 254 | 2,108 | 2,400 | |||||||||
| Other | 6 | 73 | 1 | |||||||||
| Total | 91,724 | 91,858 | 10,118 | |||||||||
Seasonality of Business
During the last few years, we have not seen any seasonality in our sales. However, our subsidiaries experience certain effects of seasonality in their operations.
In connection with our subsidiary, Eventer, there is an increase in events scheduled during the holiday season in Israel, which typically occurs in September and October, and which corresponds to an increase in ticket sales. Following Hamas’ attack on Israel in October 2023 and the ongoing war, there was a decrease in events which led to a decrease in sales during Q4 2023.
In connection with Jeffs’ Brands, the fourth quarter of each fiscal year typically yields significant activity due to the holiday season. As a result, revenue generally declines and loss from operations generally increases in the first quarter sequentially from the fourth quarter of the previous year. Jeffs’ Brands remained and was treated as a subsidiary for the year ended December 31, 2023, as of January 2024, and as of the date of this annual report, Jeffs’ Brands is no longer one of our subsidiaries.
In connection with our subsidiary, Gix Internet, the digital advertising industry is not affected by much seasonality. However, there is a seasonal trend such that the fourth quarter is characterized by higher activity compared to average, while the first quarter is characterized in lower activity than average. This seasonality results from, among other things, changes in large advertising budgets, usually towards the end of each quarter and effective towards the end of each year. In addition, the last quarter of the year includes many leading events and an increase in advertising budgets and the volume of traffic on the network.
Marketing and Distribution
Sale or License of MUSE™ System
As part of our board of directors’ decision to examine potential opportunities to sell our MUSE™ technology, or alternatively grant a license or licenses for the use of the MUSE™ technology, our board of directors has reexamined the efforts and resources previously invested by us in our MUSE™ technology distribution agreements as well as the revenues obtained through such agreements in order to assess their financial viability. As a result of this analysis, our board of directors resolved to terminate our distribution agreements in order to redirect our resources to securing licensing agreements, which may in turn generate significant income in the short term, reduce operating expenses and lower our Company’s burn rate. On May 5, 2021, the Company engaged with a contractor into service agreement, which the contractor seek, develop, evaluate, filter and recommend suitable business opportunities for the Company in the fields of the Muse products and technology, and also Communicate and meet potential customers and introduce the Company and the Company’s products thereto, and, to the extent required by the Company from time to time, assistance and support with respect to negotiations with potential customers.
Intellectual Property
Our commercial success depends, in part, on obtaining and maintaining patent and other intellectual property protection, in the United States and internationally, for the technologies used in our products. We cannot be sure that any of our patents will be commercially useful in protecting our technology. Our commercial success also depends in part on our non-infringement of the patents or proprietary rights of third parties. The patent positions of medical device companies and companies in the automotive space, can be highly uncertain and involve complex and evolving legal and factual questions. For additional information see “Item 3. Key information—D. Risk Factors—Risks Related to Our Intellectual Property.”
We, Charging Robotics and GERD IP (hereinafter in this paragraph: “We” or “Us”) own 13 U.S. patents and have two additional pending patent applications in the U.S. In addition, we own 9 patents that were granted in other countries, including European patents, which are not valid on their own unless validated in specific European countries as indeed were validated or requested the protection of the Unified Patent System and 4 pending patent applications in such other countries. We also own two pending Paris Convention Treaty (PCT) patent applications. We also have an exclusive license to two patent assets from an academic institute subject to terms agreed in such research and license agreement that include one issued US patent and one PCT; according to said agreement we also jointly own with said academic institute one PCT.
We have seventeen (17) registered trademarks, tradenames and service marks.
Gix Internet’s subsidiary, Viewbix, has four (4) patents that it has been granted in the U.S.
Parazero’s patent portfolio consists of an aggregate of fifteen (15) patents and patent applications.
Polyrizon’s patent portfolio consists of an aggregate of eleven (11) patents and patent applications.
We cannot be sure that any patents will be granted with respect to any the pending patent applications or with respect to any patent applications filed by us in the future. There is also a significant risk that any issued patents will have substantially narrower claims than those that are currently sought.
Competition
Competition with the MUSE™ system
We have several competitors in the medical device and pharmaceutical industries. Patients and physicians may opt for more established existing therapies to treat GERD, including PPI pharmaceutical treatment or laparoscopic fundoplication surgery. PPIs are currently being offered by several large pharmaceutical manufacturers, most of whom have significantly greater financial, clinical, manufacturing, marketing, distribution and technical resources and experience than we have.
Over the last few years, a number of different medical devices and treatments have been introduced to address the “treatment gap” in GERD treatments and therapies which is found between long-term pharmaceutical therapy on one hand and surgery on the other. These devices and treatments seek to treat GERD less invasively than fundoplication and without the need for long-term use of drug therapy.
Competition related to Jeffs’ Brands
The consumer goods and e-commerce market is a highly competitive environment. Jeffs’ competitive landscape consists of various types of companies such as traditional and non-traditional consumer good companies, discount stores, traditional retailers, independent retail stores, the online platforms of these traditional retail competitors and e-commerce companies. Such competitors include: Thrasio Holdings, Inc., Aterian, Inc. (Nasdaq: ATER), Amazon.com, Helen of Troy Ltd., Newell Brands (Nasdaq: NWL), Frigidaire Appliance Company, and Trademark Global Inc.
Among CPG companies, our competitors include: Thrasio Holdings, Inc.; Aterian, Inc. (Nasdaq: ATER); Amazon; Helen of Troy Ltd., Newell Brands (Nasdaq: NWL); Frigidaire Appliance Company; and Trademark Global Inc. Despite the seemingly harsh competitive landscape, we believe that our technology and experience enable us to successfully compete and achieve our financial goals.
Competition related to our subsidiary Eventer
Eventer’s competitors are traditional ticketing offices and digital ticketing companies that operate online platforms similar to Eventer’s platform and/or offer ticket marketing and distribution services. There are many companies outside of Israel that offer event management services similar to Eventer. Specifically in Israel, however, competitors that operate in the digital ticket sales platform space include Eventbuzz and TickChak Ltd., and companies that market events include Kupat and Eventim. Likewise, there are three large companies in Israel engaged in the field of marketing and distribution of events, including Leaan Tickets Ltd., CTS Eventim New Co (Eventim), and Kupot Tel-Aviv Tickets and Shows Ltd. Eventer also enables the sale of tickets to various attractions and activities, such as skydiving, glamping and motorsport. For these types of events and activities, Eventer competes with companies, including BUYME and Groupon, which sell vouchers to consumers and businesses and generates revenue from such sales commissions.
Competition related to our subsidiary Gix Internet
There are companies that develop various types of software and digital content that partially enable some of the operations performed by Gix Internet. As of the date of the report, Gix Internet is unable to assess its size and position compared to its other competitors and its size in the digital advertising market. The main competitors in the field are Perion - a software company that produces tools in the Tools Utility software. Buzz feed, Pub+, Novelty, Hive Media, Kueez. Additionally, there are hundreds of smaller competitors.
Government Regulation
The healthcare industry, and, therefore, our business, is subject to extensive federal, state, local and foreign regulation. Some of the pertinent laws have not been definitively interpreted by the regulatory authorities or the courts, and their provisions are open to a variety of interpretations. In addition, these laws and their interpretations are subject to change.
Both federal and state governmental agencies continue to subject the healthcare industry to intense regulatory scrutiny, including heightened civil and criminal enforcement efforts. As indicated by work plans and reports issued by these agencies, the federal government will continue to scrutinize, among other things, the billing practices of healthcare providers and the marketing of healthcare products.
We believe that we have structured our business operations and relationships with our customers to comply with all applicable legal requirements. However, it is possible that governmental entities or other third parties could interpret these laws differently and assert otherwise. In addition, because there is a risk that our products could be used off label, we believe we are subject to increased risk of prosecution under these laws and by these entities even if we believe we are acting appropriately. We discuss below the statutes and regulations that are most relevant to our business and most frequently cited in enforcement actions.
C. Organizational Structure
As of December 31, 2023, we had four significant subsidiaries, (i) Jeffs’ Brands, a company incorporated under the laws of the State of Israel, in which we held, as of December 31, 2023, 34.11% of its outstanding share capital; as of the date of this annual report we hold 6.32% of Jeffs’ Brands’ outstanding share capital and it is no longer a significant subsidiary, (ii) Eventer Technologies, a company incorporated under the laws of the State of Israel in which held, as of December 31, 2023, 46.21% of its outstanding share capital, (iii) Fuel Doctor, a Delaware corporation, in which we held, as of December 31, 2023, 67% of its outstanding share capital, (iv) Gix Internet a company incorporated under the laws of the State of Israel in which we held, as of December 31, 2023, 45.75% of its outstanding share capital.
In April 2023, Charging Robotics Ltd. consummated a share exchange transaction, whereby it became a wholly owned subsidiary of Fuel Doctor Holdings, Inc. As a result, as of December 31, 2023, we held 67% of the outstanding share capital of Fuel Doctor Holdings, Inc., with options to increase our holdings to 71% of the outstanding share capital based on predetermined milestones. See also “Item 4.B. – Business Overview – Electric Vehicle Activity Overview.”
D. Property, Plant and Equipment
Our offices and research and development facility are located at 10 HaNechoshet Street, Tel Aviv, Israel, 6971072, where we occupy approximately 102 square meters. We believe our facilities sufficiently meet our current needs.
ITEM 4A. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes to those statements included elsewhere in this annual report on Form 20-F. In addition to historical consolidated financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under “Item 3. Key Information—D. Risk Factors” and elsewhere in this annual report.
Certain information called for by this Item 5, including a discussion of the year ended December 31, 2022, compared to the year ended December 31, 2021, has been reported previously in our annual report on May 3, 2023, under Item 5 “Operating and Financial Review and Prospects”.
For the purpose of this Item 5., references to “Xylo Technologies”, the “Company”, “us”, “we” and “our” refer to Xylo Technologies and its consolidated subsidiaries.
Overview
Our legal and commercial name is Xylo Technologies Ltd. We were incorporated in the State of Israel on December 9, 1999, as a private company pursuant to the Israeli Companies Ordinance (New Version), 1983. In February 2006, we completed our initial public offering in Israel, and until January 25, 2021, our Ordinary Shares were traded on the TASE, under the symbol “MDGS”. On January 25, 2021, we delisted our Ordinary Shares from trading on TASE. In May 2015, we listed our ADSs on Nasdaq, and from August 2015 until April 17, 2024, our ADSs were traded on the Nasdaq under the symbol “MDGS”. Following a 1:15 ratio change of the ADSs on November 14, 2022 (the “Ratio Change”), each ADS represents fifteen (15) Ordinary Shares. In connection with our name change our ADSs began trading on Nasdaq under the symbol “XYLO” as of April 18, 2024.
On October 14, 2020, we signed a share purchase agreement and a revolving loan agreement with Eventer. The Eventer transaction closed on October 26, 2020. Pursuant to the share purchase agreement, we invested $750,000 and were issued 325,270 ordinary shares of Eventer, representing 58.7% of Eventer’s then issued and outstanding share capital. On April 8, 2021, Eventer consummated an additional share purchase agreement with certain investors in connection with the sale and issuance its ordinary shares for an aggregate amount of $2.25 million (the “Purchase Agreement”). According to the Purchase Agreement, if during the twelve months following the closing of the Purchase Agreement, or March 25, 2022, Eventer shall not consummate an IPO, then the price per share shall be adjusted by issuance of additional shares. By March 25, 2022, Eventer had not consummated an IPO, therefore, on May 25, 2022, Eventer issued additional shares to the Company and additional investors. As a result of such share issuance, our holding in Eventer decreased to 46.21% of Eventer’s outstanding share capital.
On October 8, 2020, we entered into a common stock purchase agreement with Pro Inc., Purex, and their respective stockholders pursuant to which we acquired 50.01% of Pro’s and 50.03% of Purex’s issued and outstanding share capital on a fully diluted basis through a combination of cash investments in the companies and acquisition of additional shares from the then current shareholders of the two companies in consideration for our restricted ADSs and a cash component. We agreed to; invest an aggregate amount of $1,250 thousand in Pro and Purex, pay $150 thousand in cash consideration to the current stockholders, and issue up to $500 thousand worth of restricted ADSs to the current stockholders of such companies subject to EBITDA milestones. Following the EBITDA results, the Company issued $71 thousand worth of restricted ADSs in June 20201. The transactions contemplated in the definitive agreements closed on January 4, 2021.
On May 16, 2021, we entered into a stock exchange and plan of restructuring agreement with Viki Hakmon, the other shareholder of Pro and Purex, and Jeffs’ Brands. Pursuant to which, among other things, we and Victor Hacmon transferred all our holdings in Pro and Purex to Jeffs’ Brands, in return for a consideration of Jeffs’ Brands ordinary shares that were issued respectively. As a result, Pro and Purex became wholly-owned subsidiaries of Jeffs’ Brands. The share exchange transaction was accounted in a manner similar to Pooling-of-Interests (“As Pooling”).
On August 30, 2022, we participated in Jeffs’ Brands initial public offering, and purchased 34,341 units comprised of 34,3441 ordinary shares and warrants to purchase up to 34,341ordinary shares with an exercise price of $14.14 per ordinary share. These numbers were adjusted to reflect the reverse share split that occurred November 3, 2023.
As of December 31, 2023, we held 34.11% of Jeffs’ Brands outstanding share capital.
On January 30, 2024, Jeffs’ Brands completed a private placement in which we didn’t participate. Following such private placement, and as of the date of this report, we hold 6.32% of Jeffs’ Brands outstanding share capital.
As of December 31, 2021, we held 34.58% of Gix Internet’s outstanding share capital. On February 14, 2022, we purchased 500,000 additional shares, increasing our holdings to 35.78% of Gix Internet’s outstanding share capital. On February 28, 2022, we purchased additional shares following which our holdings in Gix Internet increased to 38.03% of its outstanding share capital. As a result of this increase, and the fulfillment of additional conditions we consolidated Gix Internet’s financial statements as of February 28, 2023. On June 19, 2022, we purchased an additional 3,171,160 shares of Gix Internet. On December 11, 2023, we signed an agreement for an additional investment of NIS 1.3 million (approximately USD 350 thousand). As of December 31, 2023, we held 45.75% of Gix Internet’s outstanding share capital.
A. Operating results:
The following table sets forth a summary of our operating results:
| Year ended December 31, |
||||||||
| 2023 | 2022 | |||||||
| U.S. Dollars, in thousands, except per share and weighted average shares data |
||||||||
| Revenues | ||||||||
| Products | 10,008 | 5,861 | ||||||
| Services | 81,716 | 85,997 | ||||||
| 91,724 | 91,858 | |||||||
| Cost of revenues | ||||||||
| Products | 9,019 | 5,059 | ||||||
| Services | 70,864 | 72,347 | ||||||
| 79,883 | 77,406 | |||||||
| Gross profit | 11,841 | 14,452 | ||||||
| Research and development expenses | 5,888 | 5,221 | ||||||
| Sales and marketing expenses | 4,660 | 4,372 | ||||||
| General and administrative expenses | 12,108 | 13,440 | ||||||
| Net loss from changes in fair value of financial assets at fair value through profit or loss | 3,830 | 2,713 | ||||||
| Equity losses | 4,107 | 2,659 | ||||||
| Net loss (gain) from derecognition of investments accounted for using the equity method | 2,227 | (169 | ) | |||||
| Impairment of goodwill and other intangible assets | 1,812 | - | ||||||
| Amortization of excess purchase price of associates | 530 | - | ||||||
| Operating loss | (23,321 | ) | (13,784 | ) | ||||
| Gain from initial recognition of assets and liabilities upon consolidation of Gix Internet | - | (2,300 | ) | |||||
| Loss from sale of investments | - | 127 | ||||||
| Other income, net | (329 | ) | (45 | ) | ||||
| Gain from changes in fair value of warrants issued to investors | (396 | ) | (159 | ) | ||||
| Gain from changes in fair value of warrants issued to third party investors by subsidiaries | (2,322 | ) | (3,619 | ) | ||||
| Financial loss, net | 1,532 | 2,309 | ||||||
| Loss before taxes on income | (21,806 | ) | (10,097 | ) | ||||
| Tax expense (benefit) | (74 | ) | 111 | |||||
| Net loss for the year | (21,732 | ) | (10,208 | ) | ||||
| Other comprehensive income (loss) | ||||||||
| Items that may be reclassified to profit or loss | ||||||||
| Share of other comprehensive income (loss) of consolidated subsidiaries and associates accounted for using the equity method | (121 | ) | 460 | |||||
| Other comprehensive income (loss) for the year | (121 | ) | 460 | |||||
| Total comprehensive loss for the year | (21,853 | ) | (9,748 | ) | ||||
| Net loss for the year is attributable to: | ||||||||
| Owners of Xylo Technologies Ltd. | (16,025 | ) | (9,815 | ) | ||||
| Non-controlling interests | (5,707 | ) | (393 | ) | ||||
| (21,732 | ) | (10,208 | ) | |||||
| Total comprehensive loss for the year is attributable to: | ||||||||
| Owners of Xylo Technologies Ltd. | (16,210 | ) | (9,503 | ) | ||||
| Non-controlling interests | (5,643 | ) | (245 | ) | ||||
| (21,853 | ) | (9,748 | ) | |||||
| Earnings (Loss) per ordinary share attributed to Xylo Technologies Ltd. | ||||||||
| Basic | (0.63 | ) | (0.4 | ) | ||||
| Diluted | (0.63 | ) | (0.4 | ) | ||||
| Weighted average ordinary shares outstanding (in thousands) | 25,292 | 24,385 | ||||||
| Basic | 25,292 | 24,385 | ||||||
Year ended December 31, 2023, compared to year ended December 31, 2022
Revenues
Revenues for the year ended December 31, 2023, were $91,724 thousand representing a decrease of $134 thousand or 0.1% compared to total revenues of $91,858 thousand for the year ended December 31, 2022.
The decrease in revenues was primarily due to the decrease in Gix Internet revenues offset by the increase in revenues related to Jeffs’ Brands.
The tables below set forth our revenues, by region and by product for the periods presented:
U.S. dollars; in thousand
| Year Ended December 31, | ||||||||||||||||
| 2023 | 2022 | |||||||||||||||
| United States | 49,954 | 54 | % | 52,129 | 56.7 | % | ||||||||||
| Europe | 19,285 | 21 | % | 21,731 | 24 | % | ||||||||||
| Great Britain | 5,628 | 6 | % | 166 | 0.2 | % | ||||||||||
| Israel | 15,653 | 17 | % | 15,266 | 16.6 | % | ||||||||||
| Canada | 944 | 1 | % | 385 | 0.4 | % | ||||||||||
| Asia | 254 | 0.3 | % | 2,108 | 2 | % | ||||||||||
| Other | 6 | 1.7 | % | 73 | 0.1 | % | ||||||||||
| Total | 91,724 | 100 | % | 91,858 | 100 | % | ||||||||||
U.S. dollars; in thousand
| Year Ended December 31, | ||||||||||||||||
| 2023 | 2022 | |||||||||||||||
| Revenues from commissions (from Eventer Technologies) | 2,103 | 2 | % | 2,465 | 3 | % | ||||||||||
| Revenues from sale of products (from Jeffs’ Brands) | 10,008 | 11 | % | 5,861 | 6 | % | ||||||||||
| Revenues from internet services (from Gix Internet) * | 79,613 | 87 | % | 83,532 | 91 | % | ||||||||||
| Total | 91,724 | 100 | % | 91,858 | 100 | % | ||||||||||
| * | Gix Internet was consolidated as of February 28, 2022. |
Our revenues in 2023 were primarily derived from the sale of products primarily on Amazon online marketplace and from internet services.
The decrease in revenues from internet services was mainly as a result of technological changes and changes in content policy in the advertising platforms.
The increase in revenues from products on the Amazon Online Marketplace was primarily due the acquisition of Fort Products Ltd., on March 9, 2023.
Cost of revenues
Cost of revenues for the year ended December 31, 2023, were $79,883 thousand representing an increase of $2,477 thousand, or 3.2%, compared to cost of revenues and of $77,406 thousand for the year ended December 31, 2022. The increase was primarily due to (i) the consolidation of Gix Internet as of February 28, 2022, as compared to the twelve months period ended December 31, 2023; (ii) the acquisition of Fort Products Ltd., on March 9, 2023; (iii) an increase in commissions costs of Jeffs’ Brands.
Gross Profit
Gross profit for the year ended December 31, 2023, was $11,841 thousand, representing a decrease of $ 2,611 thousand compared to gross profit of $14,452 thousand for the year ended December 31, 2022. The gross profit decrease is a result mainly due to the decrease in Gix Internet revenues as a result of technological changes and changes in content policy in the advertising platforms and a decrease in gross profit in Jeffs' Brands.
Research and Development Expenses
Research and development expenses for the year ended December 31, 2023, were $5,888 thousand, representing an increase of $667 thousand, or 12.8%, compared to $5,221 thousand for the year ended December 31, 2022. The increase was mainly attributable to the consolidation of Gix Internet effective as of February 28, 2022, compared to a full fiscal year for the period ended December 31, 2023.
Sales and Marketing Expenses
Sales and marketing expenses for the year ended December 31, 2023, were $4,660 thousand, representing an increase of $288 thousand, or 6.6%, compared to $4,372 thousand for the year ended December 31, 2022. The increase was primarily due to the increase of sales and marketing expenses in Gix Internet mainly due to an increase in its’ costs of writing content and the expansion to additional languages. It was additionally due to the consolidation of Gix Internet effective as of February 28, 2022, compared to a full fiscal year for the period ended December 31, 2023.
General and Administrative Expenses
General and Administrative expenses for the year ended December 31, 2023, were $12,108 thousand, representing a decrease of $1,332 thousand, or 9.9 %, compared to $13,440 thousand, for the year ended December 31, 2022. The decrease was primarily due to a decrease in our professional services and a decrease in Eventer’s professional services.
Net change in fair value of financial assets at fair value through profit or loss
During 2023 we recognized a loss of $3,830 thousand from net change in the fair value of financial assets derived mainly due to expenses of $1,806 from Parazero, $703 thousand from Clearmind Medicine Inc. and $793 thousand from Automax Ltd.
Equity losses
The investments in each of Polyrizon, Revoltz, Laminera, SciSparc Nutraceuticals Inc., A.I Conversation Systems and Zig Miami 54 are accounted for using the equity method. The share net loss accounted for using the equity method for the year ended December 31, 2023, amounted to $4,107 thousand representing an increase of $1,448 thousand, or 54.5% compared to $2,659 thousand, for the year ended December 31, 2022. The increase was primarily due to equity losses in SciSparc Nutraceuticals Inc, and Laminera.
Net loss from derecognition of investments accounted for using the equity method
During 2023 we recorded $2,227 thousand net loss from derecognition of investments accounted for using the equity method upon loss of significant influence mainly due to a gain of $714 thousand from transition of Parazero investment to a fair value method and a loss of $2,941 thousand from Odysight.ai as a result of transition of the investment to a fair value method prior to its sale.
Impairment of goodwill and other intangible assets
During 2023 we recognized an impairment loss of goodwill and other intangible assets of $1,812 thousand mainly due to an impairment loss of $508 thousand for the online advertising & internet traffic routing reporting unit’s goodwill and of $1,304 thousand related to Eventer’s software license.
Operating loss
We incurred an operating loss of $23,321 thousand for the year ended December 31, 2023, representing an increase of $9,537 thousand, or 69.2% compared to operating loss of $13,784 thousand for the year ended December 31, 2022. The increase was primarily due to an increase in equity losses, increase in losses from financial assets at fair value, loss upon derecognition of investments accounted for using the equity method, impairment of goodwill and other intangible assets and amortization of excess purchase price of associates.
Change in Fair Value of Warrants Issued to Investors
Profit from change in the fair value of warrants issued to investors for the year ended December 31, 2023, was $396 thousand, representing an increase of $237 thousand, compared to profit of $159 thousand for the year ended December 31, 2022. The increase in profit is mainly due to the expiration of the warrants on July 19, 2023.
Loss (Gain) from changes in fair value of warrants issued to third party investors by subsidiaries
Gain from change in the fair value of warrants issued to third party investors by a consolidated subsidiary for the year ended December 31, 2023, was USD 2,322 thousand compared to loss of USD 3,619 thousand for the year ended December 31, 2022
Warrants issued to investors are classified as either liabilities or as part of the shareholders’ equity based on the accounting guidance established in connection with the rights attached to the warrants. The warrants that were classified as liabilities due to a cashless exercise mechanism are subject to adjustment to fair value each statement of financial position cut-off date. This adjustment is presented separately within the consolidated statement of loss and other comprehensive loss.
Financial expenses net
Finance expenses, net for the year ended December 31, 2023, were $1,532 thousand, representing a decrease of $777 thousand, compared to finance expenses of $ 2,309 thousand for the year ended December 31, 2022, primarily due to decrease in loans of Jeffs’ Brands, decrease in financial expenses of Eventer and exchange rate differences.
Loss for the year
We incurred net loss of $21,732 thousand for the year ended December 31, 2023, representing an increase of $11,524 thousand, or 112.9%, compared to loss of $10,208 thousand for the year ended December 31, 2022. This increase was primarily due to: (i) a decrease in gross margin of Gix Internet and Jeffs’ Brands; (ii) an increase in equity losses; (iii) loss upon derecognition of investments accounted for using the equity method; and (iv) an increase in impairment of goodwill and other intangible assets.
Year ended December 31, 2022, compared to year ended December 31, 2021
The discussion and analysis regarding the results of operations from the fiscal years ended December 31, 2022, and December 31, 2021, is contained in our annual report on Form 20-F, filed with the SEC, on May 3, 2023.
Effective Corporate Tax Rate
Our effective consolidated tax rate for the years ended December 31, 2023, and 2022 was almost zero percent (0%), primarily due to the fact that the Company, Gix Internet, Jeffs’ Brands and Eventer did not record a deferred tax asset in connection with the losses incurred in Israel, since it is not probable that we will be able to utilize such losses in the foreseeable future against taxable income.
Impact of Inflation, Devaluation and Fluctuation in Currencies on Results of Operations, Liabilities and Assets
We generate part of our revenues in different currencies than our functional currency (U.S. dollars), such as NIS, Euro and GBP. As a result, some of our financial assets are denominated in these currencies, and fluctuations in these currencies could adversely affect our financial results. A considerable amount of our expenses are generated in U.S. dollars, but a significant portion of our expenses such as salaries are generated in other currencies such as NIS. In addition to our operations in Israel, we are expanding our international operations in the European Union. Accordingly, we incur and expect to continue incurring additional expenses in non-U.S. dollar currencies, such as described above. Due to the mentioned, our results could be adversely affected as a result of a strengthening or weakening of the U.S. Dollar compared to these other currencies.
The inflation in Israel during the last several years was relatively immaterial and, therefore, had immaterial effect on our results of operations.
Effective January 1, 2016, we changed our functional currency to the U.S. dollar from NIS. This change was based on management’s assessment that the U.S. dollar is the primary currency of the economic environment in which we operate. Accordingly, the functional and reporting currency of our consolidated financial statements is the U.S. dollar.
B. Liquidity and Capital Resources
Liquidity
During the year ended December 31, 2023, we incurred a total comprehensive loss of approximately $21.8 million and a negative cash flow used in operating activities of approximately $6.2 million. As of December 31, 2023, we incurred accumulated deficit of approximately $101.6 million.
We will need to seek additional sources of funds, including selling additional equity, debt or other securities or entering into a credit facility, take costs reduction steps or modify our current business plan to achieve profitability. If we raise additional funds through the issuance of debt securities, these securities may have rights senior to those of our Ordinary Shares and could contain covenants that could restrict our operations and ability to issue dividends. We may also require additional capital beyond our currently forecasted amounts. Any required additional capital, whether forecasted or not, may not be available on reasonable terms, or at all. If we are unable to obtain additional financing, we may be required to reduce the scope of, delay or eliminate some or all of our planned research, development and commercialization activities, which could materially harm our business and results of operations.
Because of the numerous risks and uncertainties associated with the development of our products and the current economic situation, we are unable to estimate the exact amounts of capital outlays and operating expenditures necessary to complete the development of our products and successfully deliver commercial products to the market. Our future capital requirements will depend on many factors, including but not limited to the following:
| ● | the revenue generated by sales of our current and future products; | |
| ● | the expenses we incur in selling and marketing our products and supporting our growth; |
| ● | the costs and timing of regulatory clearance or approvals for new products or upgrades or changes to our products; | |
| ● | the expenses we incur in complying with domestic or foreign regulatory requirements imposed on medical device companies; |
| ● | the rate of progress, cost and success or failure of on-going development activities; | |
| ● | the emergence of competing or complementary technological developments; | |
| ● | the costs of filing, prosecuting, defending and enforcing any patent or license claims and other intellectual property rights; | |
| ● | the terms and timing of any collaborative, licensing, or other arrangements that we may establish; | |
| ● | the future unknown impact of recently enacted healthcare legislation; | |
| ● | the acquisition of businesses, products and technologies; and | |
| ● | general economic conditions and interest rates. |
Cash Flows
Net cash used in operating activities for the year ended December 31, 2023, was $6,247 thousand, compared to $5,656 thousand for the year ended December 31, 2022. For the year ended December 31, 2023, the Company had net cash used in investing activities of $1,438 thousand compared to net cash used in investing activities of $4,476 thousand for the year ended December 31, 2022. For the year ended December 31, 2023, the Company had net cash used in financing activities of $3,149 thousand compared to $5,410 thousand of net cash flow from financing activity for the year ended December 31, 2022.
The change in our liquidity for the year ended December 31, 2023, resulted from several factors, including but not limited to:
| ● | net cash used in operating activities consists primarily of $8,124 thousand decrease in trade accounts payable, $595 thousand increase in inventory, $953 thousand interest paid, $624 thousand tax paid, offset by $9,126 thousand decrease in trade accounts receivable and $569 thousand increase in accrued expenses and other current liabilities. |
| ● | net cash used in investing activities consists mainly of $5,241 thousand acquisitions and investments in associates, $1,696 thousand purchase of intangible assets, $250 thousand loans to others and $1,870 thousand loans to associates offset by $6,102 thousand proceeds from sale of financial assets at fair value through profit or loss, $866 thousand changes in short term deposits and $785 thousand repayment of loans to associates. |
| ● | net generated from financing activities consists mainly of $3,122 thousand repayment of short-term and long-term loans and, $2,625 thousand purchase of shares from non-controlling interests offset by $3,010 thousand receipt of short-term and long-term loans. |
C. Research and Development, Patents and Licenses, etc.
Our research and development efforts are focused on continuous improvement of our products. We conduct all of our research activities in Israel.
As of December 31, 2023, our research and development team consisted of 14 employees and subcontractors for the development of our products in Gix Internet, and Eventer as needed. We have assembled an experienced team with recognized expertise in software, control algorithms and systems integration.
The table below set forth our research and development expenses for the periods presented:
| Year Ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| (U.S. Dollars, in thousands) | ||||||||
| Research and development expenses | $ | 5,888 | $ | 5,221 | ||||
From time to time, we file applications for patent registration in certain countries, some in which we are active and some which we consider as potential markets in order to protect our developed intellectual property.
D. Trend Information
Other than as disclosed elsewhere in this Annual Report, we are not aware of any trends, uncertainties, demands, commitments or events for the period from January 1, 2023 to December 31, 2023 that are reasonably likely to have a material adverse effect on our revenue, profitability, liquidity or capital resources, or that caused the disclosed financial information to be not necessarily indicative of future operating results or financial condition.
E. Critical Accounting Estimates
Our significant accounting policies and their effect on our financial condition and results of operations are more fully described in our audited consolidated financial statements included elsewhere in this Annual Report. We have prepared our financial statements in conformity with International Financial Reporting Standards or IFRS, which requires management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes. These estimates are prepared using our best judgment, after considering past and current events and various other assumptions. While management believes the factors evaluated provide a meaningful basis for establishing and applying sound accounting policies, management cannot guarantee that the estimates will always be consistent with actual results. In addition, certain information relied upon by us in preparing such estimates includes internally generated financial and operating information, external market information, when available, and when necessary, information obtained from consultations with third parties. Actual results may differ from these estimates. We believe that the accounting policies discussed below are critical to our financial results and to the understanding of our past and future performance, as these policies relate to the more significant areas involving management’s estimates and assumptions. We consider an accounting estimate to be critical if: (1) it requires us to make assumptions because it included matters that were highly uncertain at the time, we were making our estimate or the assumption is material due to the levels of subjectivity and judgment involved, and (2) changes in the estimate could have a material impact on our financial condition or results of operations.
Fair value measurements and valuation process of financial assets and liabilities measured at fair value through profit or loss (FVTPL)
Some of the Group’s financial assets and financial liabilities are measured at fair value for financial reporting purposes.
In estimating the fair value of such assets or liabilities, the Group uses market-observable data. Where Level 1 or 2 inputs are not available, the Group determines the fair value of the financial instrument using acceptable valuation techniques and, as applicable, engages third party qualified valuation specialists to perform the valuation.
Impairment of Intangible Assets
During 2023, the Company recognized an impairment loss of USD 508 thousand for the online advertising & internet traffic routing reporting unit’s goodwill, reducing the book value of goodwill to USD 7.7 million as of December 31, 2023. The Company’s quantitative goodwill impairment test involves the comparison of the fair value of each reporting unit to its carrying value. In estimating the fair value of the online advertising & internet traffic routing reporting unit (Gix Internet) the Company used the income approach method, which requires management to make significant estimates and assumptions related to future cash flows and discount rates.
Additionally, the Company’s subsidiary, during the year ended December 31, 2023, Jeffs’ Brands recorded an impairment loss of USD 955 thousand, within equity losses, on its equity investment in SciSparc Nutraceuticals Inc. The impairment loss was determined based on the fair value valuation of the Wellution trade name by SciSparc Nutraceuticals Inc. In estimating the fair value of the trade name, Jeffs’ Brands used the relief from royalty method, which similarly requires management to make significant estimates and assumptions related to future cash flows and discount rates.
Recent Accounting Pronouncements
Please see Note 2 to our audited consolidated financial statements included elsewhere in this annual report for information regarding recent accounting pronouncements.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and Senior Management
The following table lists the names and ages of our directors and senior management as of April 19, 2024:
| Name | Age | Position(s) | ||
| Liron Carmel | 40 | Chief Executive Officer | ||
| Eliyahu Yoresh(1)(3)(4) | 54 | Chairman of the Board of Directors | ||
| Ronen Rosenbloom(1)(2)(4) | 52 | Director | ||
| Eli Cohen(1)(2)(3)(4) | 55 | Director | ||
| Kineret Tzedef(2)(4) | 44 | Director | ||
| Tali Dinar | 52 | Chief Financial Officer |
| (1) | Member of the audit committee. |
| (2) | Member of the compensation committee. |
| (3) | Member of the investment committee. |
| (4) | Indicates independent director under Nasdaq Stock Market rules. |
Liron Carmel has served as our Chief Executive Officer since April 2019. Mr. Carmel has vast experience in business and leadership across multiple industries, including bio pharma, internet technology, oil & gas exploration & production, real estate and financial services. In addition, he serves as chairman of the Israel Table Tennis Association. Mr. Carmel also currently serves as a member of the board of directors of several of our subsidiaries including Gix Internet (TASE: GIX), beginning April 2021, Polyrizon Ltd., beginning July 2020, Jeffs’ Brands Ltd. (Nasdaq: JFBR) beginning September 2021, Viewbix Inc. (OTC: VBIX) beginning September 2022 and as the chairman of the board of directors of Eventer Technologies Ltd. beginning October 2020.
Eliyahu Yoresh has served as a member of our Board since September 2018 and as Chairman of the board since February 2020. Mr. Yoresh serves as Chief Financial Officer of Foresight Autonomous Holdings Ltd. (Nasdaq, TASE: FRSX). In addition, Mr. Yoresh serves as Chairman of Gix (TASE: GIX) and serves as a director of Rail Vision (Nasdaq: RVSN), Jeffs’ Brands (Nasdaq: JFBR), Viewbix Inc. (OTC: VBIX), Fuel Doctor Holdings Inc (OTC:FDOC). and Elbit Imaging (TASE: EMITF). Mr. Yoresh served as the Chief Executive Officer of Tomcar Global Holdings Ltd., a global manufacturer of off-road vehicles, from 2005 to 2008. Mr. Yoresh is an Israeli Certified Public Accountant. Mr. Yoresh holds a B.A. in business administration from the College of Management, Israel and an M.A. in Law Study from Bar-Ilan University, Israel.
Ronen Rosenbloom has served as a member of our Board since September 2018. Mr. Rosenbloom is an independent lawyer and has been working for a self-owned law firm specializing in white collar offences since 2004. Mr. Rosenbloom served as chairman of the Israeli Money Laundering Prohibition committee and the Prohibition of Money Laundering Committee of the Tel Aviv District, both of the Israel Bar Association from November 2015 until December 2019. Mr. Rosenbloom holds an LL.B. from the Ono Academic College, an Israeli branch of University of Manchester.
Eli Cohen has served as a member of our Board since September 2018. Mr. Cohen is an independent lawyer working for a self-owned firm. He serves as chairman of Univo Pharmaceuticals Ltd., as director of Europe Hagag Ltd., and previously served as director of Hagag Group Ltd., Multimatrixs Ltd., Matrat Mizug Ltd. and User Trend-M Ltd. Mr. Cohen also serves as a director of several private companies. Mr. Cohen holds a B.A. in economics, an LL.B. and an LL.M. in Commercial Law from Tel-Aviv University, as well as an MBA from the Northwestern University and Tel-Aviv University joint program.
Kineret Tzedef has served as member of our Board since June 2019. Ms. Tzedef also serves as a director of sports division and served in other positions at Hapoel Organization (Israeli Sport Federation) since 2007. Ms. Tzedef serves as an external director at Upsellon Brands Holdings Ltd. (TASE: UPSL), and as an external director of Augwind Energy Tech Storage Ltd. (TASE: AUGN). Ms. Tzedef is admitted to the Israel Bar Association since 2014. Ms. Tzedef holds a LL.B. from the Academic Center for Law and Science, Israel and a B.Ed. in Law Study from the Academic College at Wingate, Israel.
Tali Dinar has served as our Chief Financial Officer since June 8, 2021. Mrs. Dinar served as Chief Financial Officer of Novomic Ltd., a private company between January 2019 and January 2023. Mrs. Dinar also currently serves as a member of the board of directors of Jeffs’ Brands, beginning September 30, 2021, Parazero. beginning February 13, 2022, a director in Charging Robotics Ltd. since November 2021, a director in Fuel Doctor Holding Inc. since April 4, 2023. She has also served as a member of the board of directors of Micronet Ltd. (TASE: MCRNT) between July 2016 and February 2023. In addition, she has also served as a director of Canzon Israel Ltd. (TASE: CNZN) since August 2020 until March 2022. Between 2019 and 2020, Mrs. Dinar served as the Chief Financial Officer of TechCare Corp. (currently Citrine Global Corp.) (OTCQB: CTGL). Between 2009 and 2019, Mrs. Dinar worked at the MICT group and served in various positions, including as Chief Financial Officer of MICT Inc. (Nasdaq: MICT) and as Chief Financial Officer of MICT Telematics Ltd. From 2002 until 2006, Mrs. Dinar served as the chief controller of I.T.L. Optronics Ltd. From 1997 until 2000, Mrs. Dinar worked in the audit department of Ernst & Young Global. Mrs. Dinar is a certified public accountant in Israel and holds a B.A. degree in Accounting and Business Management from The College of Management, Israel.
Family Relationships
There are no family relationships between any members of our executive management and our directors.
Arrangements for Election of Directions and Members of Management
There are no arrangements or understandings with major shareholders, customers, suppliers or others pursuant to which any of our executive management or our directors were appointed.
B. Compensation
Compensation of Directors and Executive Officers
In accordance with the provisions of the Companies Law, the compensation of our directors and officer holders must generally comply with the terms and conditions of our compensation policy, as approved by our compensation committee, board of directors and general meetings of our shareholders, subject to certain exceptions under the Companies Law.
The table below reflects the compensation granted to our six most highly compensated directors and officers during or with respect to the year ended December 31, 2023.
| Name and Position | Salary | Bonus | Equity-Based Compensation(1) |
Total | ||||||||||||
| U.S. Dollars in thousands | ||||||||||||||||
| Liron Carmel, Chief Executive Officer | 169 | 124 | 158 | 451 | ||||||||||||
| Eliyahu Yoresh(2), Chairman of the Board of Directors | 127 | 119 | 158 | 404 | ||||||||||||
| Tali Dinar(3), Chief Financial Officer | 136 | 28 | 64 | 228 | ||||||||||||
| Kineret Tzedef, Director | 30 | - | 41 | 71 | ||||||||||||
| Eli Cohen, Director | 30 | - | 46 | 76 | ||||||||||||
| Ronen Rosenbloom, Director | 30 | - | 40 | 70 | ||||||||||||
| (1) | Represents the equity-based compensation expenses, including expenses related to RSUs, recorded in the Company’s consolidated financial statements for the year ended December 31, 2023, based on the fair value, calculated in accordance with accounting guidance for equity-based compensation. |
| (2) | Mr. Yoresh has been serving as a member of our board of directors since September 2018 and as Chairman of the board of directors since February 2020. |
| (3) | Salary includes gross salary plus payment of social benefits made by us on behalf of such office holder. Such benefits may include, to the extent applicable to the office holder, payments, contributions and/or allocations for savings funds (such as managers’ life insurance policy), education funds (referred to in Hebrew as “keren hishtalmut”), pension, severance, risk insurances (e.g., life, or work disability insurance), payments for social security and tax gross-up payments, vacation, medical insurance and benefits, convalescence or recreation pay and other benefits and perquisites consistent with our policies. |
The aggregate compensation paid by us to our office holders, as defined in the Companies Law, for the year ended December 31, 2023, was approximately $1.3 million, which includes six persons. This amount includes, when applicable, set aside or accrued to provide pension, severance, retirement or similar benefits or expenses, car expenses and value of the Ordinary Shares underlying the options representing accounting expenses, but does not include business travel, relocation, professional and business association dues and expenses reimbursed to officers, and other benefits commonly reimbursed or paid by companies in Israel.
Compensation of Directors
Under the Companies Law and the rules and regulations promulgated thereunder, our directors are entitled to a fixed annual compensation, up to the limits set forth in the compensation policy. We currently pay each of Mr. Ronen Rosenbloom, Ms. Kineret Tzedef and Mr. Eli Cohen an annual fee of NIS 132,000.
Each of our non-executive directors were also granted options to purchase 100,000 Ordinary Shares under the Plan (as defined herein). Such options were granted on June 29, 2021. The options vest over a period of three (3) years commencing on April 1, 2021, with 1/12 of such options vesting at the end of each subsequent three-month period following the grant, (ii) the term of the options is of six (6) years from the grant date, unless they have been exercised or cancelled in accordance with the terms of and conditions of the applicable incentive plan of the Company, (iii) unless previously exercised or cancelled, the options may be exercised until 180 days from the termination of the tenure of a director, (iv) the exercise price per share of the options is equal to the average share price of the 30 days prior to the date of grant, $1.783 (v) the options grant is in accordance and pursuant to Section 102 of the Income Tax Ordinance [New Version] (“Tax Ordinance”), if applicable, and (vi) the options will be accelerated upon the closing of a material transaction, resulting in change of control of the Company.
On April 25, 2021, and on May 4, 2021, our compensation committee and board of directors approved new compensation terms for Mr. Eliyahu Yoresh in connection with his services as an active chairman of the board of directors. For his services, Mr. Yoresh is entitled to receive a monthly payment of NIS 45,000 plus VAT, which constitutes the sole and complete compensation. In addition, Mr. Yoresh is entitled to an annual, target-based bonus and an additional overachievement bonus of up to 6 monthly salaries, each. The weight afforded to each target and overachievement component, is to be decided by our board of directors and compensation committee in accordance with the following weights: (a) 35% Company performance measures of strategic goals and related objectives; (b) 25% Company performance measures of material transaction or material profitability/revenues; (c) 20% Company performance measures of revenues and/or loss reduction; and (d) 20% Company performance measures of achieving commercialization of Company’s technology. The aforementioned compensation terms are consistent with our current compensation policy.
Following the approval of the annual general meeting of our shareholders held on August 30, 2021, Mr. Yoresh was granted a one-time grant of options to purchase 300,000 Ordinary Shares in accordance with the terms of the Plan. The options vest over a period of three (3) years commencing on April 1,2021, with 1/12 of such options vesting at the end of each subsequent three-month period following the grant, (ii) the term of the options is of six (6) years from the grant date, unless they have been exercised or cancelled in accordance with the terms of and conditions of the applicable incentive plan of the Company, (iii) unless previously exercised or cancelled, the options may be exercised until 180 days from the termination of Mr. Yoresh’ tenure as a chairman, (iv) the exercise price per share of the options is equal to the average share price of the 30 days prior to the date of grant, $1.783 (v) the options grant will be in accordance and pursuant to Section 102 of the Tax Ordinance, if applicable, and (vi) the options will be accelerated upon the closing of a material transaction, resulting in change of control of the Company.
As a result of market conditions, in June 2023, Mr. Yoresh and Mr. Carmel elected to reduce their compensation by 20%, effective June 2023 through December 2023. Similarly, the Board voted to reduce the directors’ compensation by 20% for the second, third and fourth quarters of 2023.
Equity Based Compensation of our Executive Officers and Directors
As of February 20, 2024, options to purchase 1,212,500 of our Ordinary Shares were outstanding and held by current executive officers and directors (consisting of 6 persons) with an average exercise price of NIS 6.78 per ordinary share, of which, options to purchase 1,204,167 of our Ordinary Shares are currently exercisable or exercisable within 60 days as of February 20, 2024. As of December 31, 2023, 259,844 restricted share units, or RSUs, had been granted to our executive officers and directors See “Item 6. Directors, Senior Management and Employees—E. Share Ownership” in this annual report on Form 20-F.
Agreements with our Executive Officers
We have entered into written agreements with each of our executive officers. All of these agreements contain customary provisions regarding non-competition, confidentiality of information and assignment of inventions. However, the enforceability of the noncompetition provisions may be limited under applicable law. In addition, we have entered into agreements with each executive officer and director pursuant to which we have agreed to indemnify each of them to the fullest extent permitted by law to the extent that these liabilities are not covered by directors and officers insurance.
Our office holders are generally eligible for bonuses each year. The bonuses are established and granted in accordance with our compensation policy and are generally payable upon meeting objectives and targets that are approved by our compensation committee and board of directors (and if required by our shareholders).
Consulting Agreement with Mr. Carmel
On July 25, 2019, our shareholders approved that as of April 2, 2019, our Company would enter into a consulting agreement with Mr. Carmel, who serves as our Chief Executive Officer. The term is for an indefinite period, however the agreement may be terminated by either party by giving 60 days advance notice, or shorter periods in some cases, such as termination for “cause.” During the notice period, Mr. Carmel will be entitled to consulting fees only to the extent that he provides services to the Company during the notice period. The agreement also includes customary covenants regarding confidentiality, IP assignment, non-competition and non-solicitation.
Mr. Carmel’s monthly consulting fee is NIS 60,000 plus VAT, effective as of May 2021, as approved by our shareholders at our annual general meeting held on August 30, 2021. In addition, Mr. Carmel is entitled to an annual target based bonus and an additional overachievement bonus of up to 6 monthly salaries each, subject to a performance matrix to be approved by the Company’s compensation committee and board of directors on an annual basis, while up to 30% of such annual bonus may be discretionary and not subject to measurable performance indexes. The annual target bonus may be reduced by our board of directors according to our financial position and Mr. Carmel’s performance, and must be returned by Mr. Carmel if it is later shown to be granted in error which shall be restated in our financial statements.
In addition, Mr. Carmel was granted with options to purchase up to 62,500 Ordinary Shares of the Company (the “Options”), in accordance with the following terms: (i) the Options vest over a period of four (4) years commencing April 1, 2019, 25% of the Options vest on the first anniversary (i.e., April 1, 2020), and 75% of the Options vest on a quarterly basis over a period of three (3) years thereafter; (ii) the term of the Options is of six (6) years from the date of grant, unless they have been exercised or cancelled in accordance with the terms of and conditions of the applicable incentive plan of the Company, (iii) unless previously exercised or cancelled, the Options may be exercised until 180 days from the date of termination of the service, (iv) the exercise price per share of the Options shall be NIS 11.8, (v) the Options’ grant shall be in accordance and pursuant to Section 102 of the Income Tax Ordinance [New Version], and (vi) the Options shall be accelerated upon the closing of a material transaction, resulting in change of control of the Company.
At the annual general meeting of our shareholders held on August 30, 2021, Mr. Carmel was granted with additional grant of options to purchase 300,000 Ordinary Shares. The options vest over a period of three (3) years commencing on April 1, 2021, with 1/12 of such options vesting at the end of each subsequent three-month period following the grant, (ii) the term of the options is of six (6) years from the grant date, unless they have been exercised or cancelled in accordance with the terms of and conditions of the applicable incentive plan of the Company, (iii) unless previously exercised or cancelled, the options may be exercised until 180 days following the termination of the engagement, (iv) the exercise price per share of the options is equal to the average share price of the 30 days prior to the date of grant, $1.783 (v) the options grant will be in accordance and pursuant to Section 102 of the Tax Ordinance, if applicable, and (vi) the options will be accelerated upon the closing of a material transaction, resulting in change of control of the Company.
Following the SEC approval of Nasdaq’s proposed clawback listing standards, under Rule 10D-1 (the “Clawback Listing Rules”), which directed companies to adopt and comply with a written clawback policy, to disclose and file the policy as an exhibit to its annual report, we have adopted as of September 28, 2023, a clawback policy as contemplated pursuant to the Clawback Listing Rules, as filed as an exhibit to this Annual Report as Exhibit 97.
C. Board Practices
Introduction
Under the Companies Law and our amended and restated articles of association, the management of our business is vested in our board of directors. Our board of directors may exercise all powers and may take all actions that are not specifically granted to our shareholders or to management. Our executive officers are responsible for our day-to-day management and have individual responsibilities established by our board of directors.
Under our amended and restated articles of association, our board of directors must consist of at least three and not more than six directors, including two external directors appointed as required under the Companies Law. Our board of directors currently consists of four members, none of which are external directors, including our chairman of the board of directors, which is also appointed by the general meeting of our shareholders.
Our directors are divided into three classes with staggered three-year terms. At each annual general meeting of our shareholders, the election or re-election of directors following the expiration of the term of office of the directors of that class of directors is for a term of office that expires on the third annual general meeting following such election or re-election, such that at each annual general meeting the term of office only one class of directors will expire. Each director holds office until the annual general meeting of our shareholders for the year in which his or her term expires and until his or her successor is duly appointed, unless the tenure of such director expires earlier pursuant to the Companies Law upon the occurrence of certain events or unless removed from office by a vote of the holders of at least 65% of the total voting power of our shareholders at a general meeting of our shareholders in accordance with our amended and restated articles of association.
Our directors are divided among the three classes as follows:
| ● | the Class I directors consist of Mr. Eli Cohen, and his term will expire at our annual general meeting of shareholders to be held in 2026; |
| ● | the Class II directors consist of Ms. Kineret Tzedef and her term will expire at our annual general meeting of shareholders to be held in 2024; and |
| ● | the Class III directors consist of Mr. Eliyahu Yoresh and Mr. Ronen Rosenbloom and their terms will expire at our annual general meeting of shareholders to be held in 2025. |
In addition, our amended and restated articles of association allow our Board of Directors to appoint directors to fill vacancies on our Board of Directors or in addition to the acting directors (subject to the limitation on the number of directors and their qualifications), until the next general meeting in which directors may be appointed or such appointment terminated.
The board of directors (and, if so determined by the board of directors, the general meeting) may at any time and from time to time appoint any person as a director to fill a vacancy (whether such vacancy is due to a director no longer serving or due to the number of directors serving being less than the maximum number of six directors. In the event of one or more such vacancies in the board of directors, the continuing directors may continue to act in every matter, provided, however, that if the number of directors serving is less than three, than our board of directors may only act in an emergency or to fill the office of a director which has become vacant up to three directors, or for the purpose of convening a general meeting of the Company’s shareholders for the purpose of electing directors to fill any or all vacancies. The office of a director that was appointed by the board of directors to fill any vacancy shall only be for the remaining period of time during which the director whose service has ended was filled would have held office, or in case of a vacancy due to the number of directors serving being less than six, the board of directors shall determine at the time of appointment the class to which the additional director shall be assigned.
Pursuant to the Companies Law and our amended and restated articles of association, a resolution proposed at any meeting of our board of directors at which a quorum is present is adopted if approved by a vote of a majority of the directors present and eligible to vote. A quorum of the board of directors requires at least a majority of the directors then in office who are lawfully entitled to participate in the meeting.
According to the Companies Law, the board of directors of a public company must determine the minimum number of board members that should have financial and accounting expertise while considering, among other, the nature of the company, its size, the scope and complexity of its operations and the number of directors stated in the articles of association. Our board of directors resolved that the minimum number of board members that need to have financial and accounting expertise is one, and that Mr. Eliyahu Yoresh has accounting and financial expertise as required under the Companies Law.
External Directors
Under the Companies Law, companies incorporated under the laws of the State of Israel that are “public companies,” including companies with shares listed on the Nasdaq Capital Market, are required to appoint at least two external directors. External directors must meet certain independence criteria to ensure that they are unaffiliated with the company and its controlling shareholder, as well as certain other criteria. External directors are elected for three-year terms in accordance with specific rules set forth in the Companies Law and the regulations promulgated thereunder and may be removed from office only under limited circumstances. Under the Companies Law, each committee of a company’s board of directors that is authorized to exercise powers of the board of directors is required to include at least one external director, and all external directors must be members of the company’s audit committee and compensation committee.
Pursuant to regulations promulgated under the Companies Law, companies with shares traded on a U.S. stock exchange, including the Nasdaq Capital Market, may, subject to certain conditions, “opt out” from the Companies Law requirements to appoint external directors and related Companies Law rules concerning the composition of the audit committee and compensation committee of the board of directors. In accordance with these regulations, effective as of June 28, 2017, we have “opted out” from the Companies Law requirements to appoint external directors and related Companies Law rules concerning the composition of the audit committee and compensation committee of the board of directors.
Under these regulations, the exemptions from such Companies Law requirements will continue to be available to us so long as: (i) we do not have a “controlling shareholder” (as such term is defined under the Companies Law), (ii) our shares are traded on a U.S. stock exchange, including the Nasdaq Capital Market, and (iii) we comply with the director independence requirements, the audit committee and the compensation committee composition requirements, under U.S. laws (including applicable Nasdaq Rules) applicable to U.S. domestic issuers. We believe that Mr. Eli Cohen, Mr. Eliyahu Yoresh, Mr. Ronen Rosenbloom and Ms. Kineret Tzedef are “independent” for purposes of the Nasdaq Stock Market rules.
Alternate directors
Our amended and restated articles of association provide, as allowed by the Companies Law, that any director may, by written notice to us, appoint another person who is qualified to serve as a director to serve as an alternate director and to terminate such appointment. Under the Companies Law, a person who is not qualified to be appointed as a director, a person who is already serving as a director or a person who is already serving as an alternate director for another director, may not be appointed as an alternate director. Nevertheless, a director who is already serving as a director may be appointed as an alternate director for a member of a committee of the board of directors as long as he or she is not already serving as a member of such committee.
Board committees
The board of directors may, subject to the provisions of the Companies Law, delegate any or all of its powers to committees, each consisting of one or more directors (except the audit and compensation committees, as described below), and it may, from time to time, revoke such delegation or alter the composition of any such committees. Unless otherwise expressly provided by the board of directors, the committees will not be empowered to further delegate such powers. The composition and duties of our audit committee and compensation committee are described below.
Audit committee
Our audit committee is currently comprised of Mr. Eli Cohen, Mr. Eliyahu Yoresh, and Mr. Ronen Rosenbloom. Mr. Eli Cohen acts as the chairperson of our audit committee.
Companies Law Requirements
Under the Companies Law, our board of directors is required to appoint an audit committee, which is responsible, among others, for:
| (i) | determining whether there are deficiencies in the business management practices of our Company, including in consultation with our internal auditor or the independent auditor, and making recommendations to our board of directors to improve such practices; |
| (ii) | determining the approval process for transactions that are ‘non-negligible’ (i.e., transactions with a controlling shareholder that are classified by the audit committee as non-negligible, even though they are not deemed extraordinary transactions), as well as determining which types of transactions would require the approval of the audit committee, optionally based on criteria which may be determined annually in advance by the audit committee; |
| (iii) | determining whether to approve certain related party transactions (including transactions in which an office holder has a personal interest and whether such transaction is extraordinary or material under Companies Law. See “— Fiduciary duties and approval of specified related party transactions and compensation under Israeli law.”; |
| (iv) | where the board of directors approves the working plan of the internal auditor, to examine such working plan before its submission to our board of directors and proposing amendments thereto; |
| (v) | examining our internal controls and internal auditor’s performance, including whether the internal auditor has sufficient resources and tools to dispose of its responsibilities; |
| (vi) | examining the scope of our auditor’s work and compensation and submitting a recommendation with respect thereto to our board of directors or shareholders, depending on which of them is considering the appointment of our auditor; and |
| (vii) | establishing procedures for the handling of employees’ complaints as to the management of our business and the protection to be provided to such employees. |
Nasdaq requirements
Under the Nasdaq corporate governance rules, we are required to maintain an audit committee consisting of at least three independent directors, all of whom are financially literate and one of whom has accounting or related financial management expertise. All members of our audit committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC and the Nasdaq corporate governance rules. Our board of directors has determined that Mr. Eliyahu Yoresh is an audit committee financial expert as defined by the SEC rules and has the requisite financial experience as defined by the Nasdaq Marketplace Rules.
Each of the members of the audit committee is required to be “independent” as such term is defined in Rule 10A-3(b)(1) under the Exchange Act, which is different from the general test for independence of board and committee members. Our board of directors has determined that each member of our audit committee is independent as such term is defined in Rule 10A-3(b)(1) of the Exchange Act.
Audit committee role
Our board of directors has adopted an audit committee charter setting forth the responsibilities of the audit committee consistent with the rules of the SEC and the Nasdaq Rules, which include, among others:
| ● | retaining and terminating our independent auditors, subject to the ratification of the board of directors, and in the case of retention, to that of the shareholders; |
| ● | pre-approving of audit and non-audit services and related fees and terms, to be provided by the independent auditors; |
| ● | overseeing the accounting and financial reporting processes of our Company and audits of our financial statements, the effectiveness of our internal control over financial reporting and making such reports as may be required of an audit committee under the rules and regulations promulgated under the Exchange Act; |
| ● | reviewing with management and our independent auditor our annual and quarterly financial statements prior to publication or filing (or submission, as the case may be) to the SEC; |
| ● | recommending to the board of directors the retention and termination of the internal auditor, and the internal auditor’s engagement fees and terms, in accordance with the Companies Law as well as approving the yearly or periodic work plan proposed by the internal auditor; |
| ● | reviewing with our general counsel and/or external counsel, as deem necessary, legal and regulatory matters that could have a material impact on the financial statements; |
| ● | identifying irregularities in our business administration, inter alia, by consulting with the internal auditor or with the independent auditor, and suggesting corrective measures to the board of directors; and |
| ● | reviewing policies and procedures with respect to transactions (other than transactions related to the compensation or terms of services) between the Company and officers and directors, or affiliates of officers or directors, or transactions that are not in the ordinary course of the Company’s business and deciding whether to approve such acts and transactions if so required under the Companies Law. |
The audit committee charter states that in fulfilling its obligations, the committee is entitled to demand from the Company any document, file, report or any other information that is required for the fulfillment of its roles and duties and to interview any of our employees or any employees of our subsidiaries in order to receive more details about his or her line of work or other issues that are connected to the roles and duties of the audit committee.
Compensation Committee
Our compensation committee is currently comprised of Mr. Ronen Rosenbloom, Mr. Eli Cohen and Ms. Kineret Tzedef. Mr. Ronen Rosenbloom acts as the chairperson of our compensation committee.
Companies Law requirements
Under the Companies Law, the board of directors of a public company must appoint a compensation committee which roles are, among others, as follows:
| ● | to recommend to the board of directors the approval of compensation policy for directors and officers in accordance with the requirements of the Companies Law; |
| ● | to oversee the development and implementation of such compensation policy and recommending to the board of directors regarding any amendments or modifications that the compensation committee deems appropriate; |
| ● | to determine whether to approve transactions concerning the terms of engagement and employment of office holders that require approval of the compensation committee; and |
| ● | to resolve whether to exempt a transaction with a candidate for Chief Executive Officer from shareholder’s approval. |
Nasdaq requirements
Our board of directors has adopted a compensation committee charter setting forth the responsibilities of the committee consistent with the Nasdaq Rules, which include among others:
| ● | recommending to our board of directors for its approval a compensation policy in accordance with the requirements of the Companies Law as well as other compensation policies, incentive-based compensation plans and equity-based compensation plans, and overseeing the development and implementation of such policies and recommending to our board of directors any amendments or modifications to the committee deems appropriate, including as required under the Companies Law; |
| ● | reviewing and approving the granting of options and other incentive awards to our Chief Executive Officer and other executive officers, including reviewing and approving corporate goals and objectives relevant to the compensation of our Chief Executive Officer and other executive officers, including evaluating their performance in light of such goals and objectives; |
| ● | approving and exempting certain transactions regarding office holders’ compensation pursuant to the Companies Law; and |
| ● | administer our equity-based compensation plans, including without limitation to approve the adoption of such plans, to amend and interpret such plans and the awards and agreements issued pursuant thereto, and to make awards to eligible persons under the plans and determine the terms of such awards. |
The compensation committee is also authorized to retain and terminate compensation consultants, legal counsel or other advisors to the committee and to approve the engagement of any such consultant, counsel or advisor, to the extent it deems necessary or advisable.
Our board of directors has determined that each member of our compensation committee is independent under the Nasdaq Rules, including the additional independence requirements applicable to the members of a compensation committee.
Compensation policy
Under the Companies Law, companies incorporated under the laws of the State of Israel, whose shares are listed for trading on a stock exchange or have been offered to the public in or outside of Israel, such as us, are required to adopt a policy governing the compensation of “office holders” (as defined in the Companies Law). Following the recommendation of our compensation committee and approval by our board of directors, our shareholders approved a new compensation policy for directors and officers on August 30, 2021. Our compensation policy must be approved at least once every three years, first, by our board of directors, upon recommendation of our compensation committee, and second, by a simple majority of the Ordinary Shares present, in person or by proxy, and voting at a shareholders meeting, provided that either:
| ● | such majority includes at least a majority of the shares held by shareholders who are not controlling shareholders and shareholders who do not have a personal interest in such compensation policy; or |
| ● | the total number of shares of non-controlling shareholders and shareholders who do not have a personal interest in the compensation policy and who vote against the policy, does not exceed 2% of the company’s aggregate voting rights. |
Such majority determined in accordance with the majority requirement described above is hereinafter referred to as the Compensation Special Majority Requirement.
To the extent a compensation policy is not approved by shareholders at a duly convened shareholders meeting or by the Compensation Special Majority Requirement, the board of directors of a company may override the resolution of the shareholders following a re-discussion of the matter by the board of directors and the compensation committee and for specified reasons, and after determining that despite the rejection by the shareholders, the adoption of the compensation policy is in the best interest of the company. A compensation policy that is for a period of more than three years must be approved in accordance with the above procedure once every three years.
The compensation policy must serve as the basis for decisions concerning the financial terms of employment or engagement of office holders, including exculpation, insurance, indemnification or any monetary payment or obligation of payment in respect of employment or engagement. The compensation policy must relate to certain factors, including advancement of the company’s objectives, the company’s business plan and its long-term strategy, and creation of appropriate incentives for office holders. It must also consider, among other things, the company’s risk management, size and the nature of its operations; and with respect to variable compensation, the contribution of the office holder towards the achievement of the company’s long-term goals and the maximization of its profits, all with a long-term objective and according to the position of the office holder. The compensation policy must furthermore consider the following additional factors:
| ● | the education, skills, experience, expertise and accomplishments of the relevant office holder; |
| ● | the office holder’s position and responsibilities; |
| ● | prior compensation agreements with the office holder; |
| ● | the ratio between the cost of the terms of employment of an office holder and the cost of the employment of other employees of the company, including employees employed through contractors who provide services to the company, in particular the ratio between such cost to the average and median salary of such employees of the company, as well as the impact of disparities between them on the work relationships in the company; |
| ● | the terms of employment include variable components — the possibility of reducing variable components at the discretion of the board of directors and the possibility of setting a limit on the value of non-cash variable equity-based components; and |
| ● | if the terms of employment include severance compensation — the term of employment or office of the office holder, the terms of the office holder’s compensation during such period, the company’s performance during such period, the office holder’s individual contribution to the achievement of the company goals and the maximization of its profits and the circumstances under which he or she is leaving the company. |
The compensation policy must also include the following principles:
| ● | with regards to variable components; |
| ● | with the exception of office holders who report to the Chief Executive Officer, a means of determining the variable components on the basis of long-term performance and measurable criteria; provided that the company may determine that an immaterial part of the variable components of the compensation package of an office holder shall be awarded based on non-measurable criteria, or if such amount is not higher than three months’ salary per annum, taking into account such office holder’s contribution to the company; |
| ● | the ratio between variable and fixed components, as well as the limit of the values of variable components at the time of their payment, or in the case of equity-based compensation, at the time of grant; |
| ● | a condition under which the office holder will return to the company, according to conditions to be set forth in the compensation policy, any amounts paid as part of the office holder’s terms of employment, if such amounts were paid based on information later to be discovered to be wrong, and such information was restated in the company’s financial statements; | |
| ● | the minimum holding or vesting period of variable equity-based components to be set in the terms of office or employment, as applicable, while taking into consideration long-term incentives; and | |
| ● | a limit to retirement grants. |
Our compensation policy is designed to promote retention and motivation of directors and executive officers, incentivize superior individual excellence, align the interests of our directors and executive officers with our long-term performance and provide a risk management tool. To that end, a portion of our executive officer compensation package is targeted to reflect our short and long-term goals, as well as the executive officer’s individual performance. On the other hand, our compensation policy includes measures designed to reduce the executive officer’s incentives to take excessive risks that may harm us in the long-term, such as limits on the value of cash bonuses and equity-based compensation, limitations on the ratio between the variable and the total compensation of an executive officer and minimum vesting periods and performance-based vesting for equity-based compensation.
Our compensation policy also addresses our executive officers’ individual characteristics (such as their respective position, education, scope of responsibilities and contribution to the attainment of our goals) as the basis for compensation variation among our executive officers and considers the internal ratios between compensation of our executive officers and directors and other employees. Pursuant to our compensation policy, the compensation that may be granted to an executive officer may include: base salary, annual bonuses and other cash bonuses (such as a signing bonus and special bonuses with respect to any special achievements, such as outstanding personal achievement, outstanding personal effort or outstanding Company performance), equity-based compensation, benefits and retirement and termination of service arrangements. All cash bonuses are limited to a maximum amount linked to the executive officer’s base salary.
An annual cash bonus may be awarded to executive officers upon the attainment of pre-set periodic objectives and individual targets. The annual cash bonus that may be granted to our executive officers other than our Chief Executive Officer will be based on performance objectives and a discretionary evaluation of the executive officer’s overall performance by our Chief Executive Officer and subject to minimum thresholds. The annual cash bonus that may be granted to executive officers other than our Chief Executive Officer may alternatively be based entirely on a discretionary evaluation. Furthermore, our Chief Executive Officer will be entitled to approve performance objectives for executive officers who report to him.
The measurable performance objectives of our Chief Executive Officer will be determined annually by our compensation committee and board of directors. A non-material portion of the Chief Executive Officer’s annual cash bonus, as provided in our compensation policy, may be based on a discretionary evaluation of the Chief Executive Officer’s overall performance by the compensation committee and the board of directors.
The equity-based compensation under our compensation policy for our executive officers (including members of our board of directors) is designed in a manner consistent with the underlying objectives in determining the base salary and the annual cash bonus, with its main objectives being to enhance the alignment between the executive officers’ interests with our long-term interests and those of our shareholders and to strengthen the retention and the motivation of executive officers in the long term. Our compensation policy provides for executive officer compensation in the form of share options or other equity-based awards, such as restricted shares and restricted share units, in accordance with our equity incentive plan then in place. The equity-based compensation shall be granted from time to time and be individually determined and awarded according to the performance, educational background, prior business experience, qualifications, role and the personal responsibilities of the executive officer.
In addition, our compensation policy contains compensation recovery provisions which allow us under certain conditions to recover bonuses paid in excess, enable our Chief Executive Officer to approve an immaterial change in the terms of employment of an executive officer who reports directly him (provided that the changes of the terms of employment are in accordance with our compensation policy) and allow us to exculpate, indemnify and insure our executive officers and directors to the maximum extent permitted by Israeli law subject to certain limitations set forth therein.
Our compensation policy also provides for compensation to the members of our board of directors either (i) in accordance with the amounts provided in the Companies Regulations (Rules Regarding the Compensation and Expenses of an External Director) of 2000, as amended by the Companies Regulations (Relief for Public Companies Traded in Stock Exchange Outside of Israel) of 2000, as such regulations may be amended from time to time, or (ii) in accordance with the amounts determined in our compensation policy.
Investment Committee
Our investment committee is comprised of Mr. Eli Yoresh and Mr. Eli Cohen. The investment committee is authorized to approve certain investments in accordance with the Company’s investment policy approved by the board of directors. The investment committee monitors the management of the portfolio for compliance with the investment policies and guidelines and considers the merits of time sensitive investments that could be beneficial to the Company.
Internal auditor
Under the Companies Law, the board of directors of a public company must appoint an internal auditor based on the recommendation of the audit committee. Under the Companies Law, each of the following may not be appointed as internal auditor:
| ● | a person (or a relative of a person) who holds more than 5% of the company’s outstanding shares or voting rights; |
| ● | a person (or a relative of a person) who has the power to appoint a director or the general manager of the company; |
| ● | an office holder (including a director) of the company (or a relative thereof); or |
| ● | a member of the company’s independent accounting firm, or anyone on his or her behalf. |
The role of the internal auditor is, among other things, to examine whether a company’s actions comply with applicable law and orderly business procedure. The audit committee is required to oversee the activities and to assess the performance of the internal auditor as well as to review the internal auditor’s work plan. Our internal auditor is Daniel Spira, Certified Public Accountant (Isr.).
Fiduciary duties and approval of specified related party transactions and compensation under Israeli law
Fiduciary duties of office holders
The Companies Law imposes fiduciary duties on all office holders of a company comprised of a duty of care and a duty of loyalty.
The duty of care requires an office holder to act in the same 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, among other things, a duty to use reasonable means, in light of the circumstances, to obtain:
| ● | information on the business 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 such action. |
The duty of loyalty requires an office holder to act in good faith and for the benefit of the company, and includes, among other things, 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. |
Under the Companies Law, we may approve an act specified above, provided that the office holder acted in good faith, the act or its approval does not harm the company’s best interest, and the office holder discloses his or her personal interest a sufficient time before the approval of such act, including any relevant document.
Disclosure of personal interests of an office holder and approval of transactions
The 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. Under the Companies Law, once an office holder complies with the above disclosure requirement, the board of directors at which the transaction is considered. An office holder is not obliged 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 an extraordinary transaction.
Under the Companies Law, 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 only if the office holder has complied with the above disclosure requirement, provided, however, that a company may not approve a transaction or action that is not to the company’s benefit.
Under the Companies Law, unless the articles of association of a company provide otherwise, a transaction with an office holder or with a third party in which the office holder has a personal interest, which is not an extraordinary transaction, requires approval by the board of directors. Our amended and restated articles of association do not state otherwise. If the transaction considered with an office holder or third party in which the office holder has a personal interest is an extraordinary transaction, then the audit committee’s approval is required prior to approval by the board of directors. For the approval of compensation arrangements with directors and executive officers, see “Item 6. Directors, Senior Management and Employees —C. Board Practices—Compensation of directors and executive officers.”
Any person who has a personal interest in the approval of a transaction that is brought before a meeting of the board of directors or the audit committee may not be present at the meeting or vote on the matter. However, if the chairperson of the board of directors or the chairperson of the audit committee has determined that the presence of an office holder with a personal interest is required, such office holder may be present at the meeting for the purpose of presenting the matter. Notwithstanding the foregoing, a director who has a personal interest may be present at the meeting and vote on the matter if a majority of the directors or members of the audit committee have a personal interest in the approval of such transaction’ provided, however, that if a majority of the directors at a board of directors meeting have a personal interest in the approval of the transaction, such transaction also requires the approval of the shareholders of the company.
A “personal interest” is defined under the Companies Law as the personal interest of a person in an action or in a transaction of the company, including the personal interest of such person’s relative or the interest of any other corporate body in which such person and/or such person’s relative is a director or general manager, a 5% shareholder or holds 5% or more of the voting rights, or has the right to appoint at least one director or the general manager, but excluding a personal interest stemming solely from the fact of holding shares in the company. A personal interest also includes (1) a personal interest of a person who votes according to a proxy of another person, including in the event that the other person has no personal interest, and (2) a personal interest of a person who gave a proxy to another person to vote on his or her behalf regardless of whether the discretion of how to vote lies with the person voting or not.
An “extraordinary transaction” is defined under the Companies Law as 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. |
An extraordinary transaction in which an office holder has a personal interest requires approval of the company’s audit committee followed by the approval of the board of directors.
Disclosure of personal interests of a controlling shareholder and approval of transactions
The Companies Law also requires that a controlling shareholder 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. A controlling shareholder’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. The following require the approval of each of (i) the audit committee (or the compensation committee with respect to the terms of engagement of the controlling shareholder or relative thereof with the company related for the provision of service, including among others as an office holder or employee of the company), (ii) the board of directors and (iii) the shareholders (in that order): (a) 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), (b) the engagement with a controlling shareholder or his or her relative, directly or indirectly, for the provision of services to the company, (c) the terms of engagement and compensation of a controlling shareholder or his or her relative as an office holder, and (d) the employment of a controlling shareholder or his or her relative by the company, other than as an office holder (collectively referred as Transaction with a Controlling Shareholder). In addition, the shareholder approval must fulfill one of the following requirements:
| ● | at least a majority of the shares held by shareholders who have no personal interest in the transaction and are voting at the meeting must be voted in favor of approving the transaction, excluding abstentions; or | |
| ● | the shares voted by shareholders who have no personal interest in the transaction who vote against the transaction represent no more than two percent (2%) of the voting rights in the company. |
In addition, any extraordinary transaction with a controlling shareholder or in which a controlling shareholder has a personal interest with a term of more than three years requires the abovementioned approval every three years, however, unless, with respect to certain transactions the audit committee determines that such longer term is reasonable under the circumstances.
Pursuant to regulations promulgated under the Companies Law, certain transactions with a controlling shareholder, a relative thereof, or with a director, that would otherwise require approval of a company’s shareholders may be exempt from shareholder approval upon certain determinations of the audit committee and board of directors.
The Companies Law requires that every shareholder that participates, in person, by proxy or by voting instrument, in a vote regarding a transaction with a controlling shareholder, must indicate in advance or in the ballot whether or not that shareholder has a personal interest in the vote in question. Failure to so indicate will result in the invalidation of that shareholder’s vote.
Approval of the compensation of directors and executive officers
The compensation of, or an undertaking to indemnify, insure or exculpate, an office holder who is not a director requires the approval of the company’s compensation committee, followed by the approval of the company’s board of directors, and, if such compensation arrangement or an undertaking to indemnify or insure is inconsistent with the company’s stated compensation policy, or if the said office holder is the Chief Executive Officer of the company (apart from a number of specific exceptions), then such arrangement is subject to the approval of our shareholders, subject to the Compensation Special Majority Requirement.
Directors. Under the Companies Law, the compensation of our directors requires the approval of our compensation committee, the subsequent approval of the board of directors and, unless exempted under the regulations promulgated under the Companies Law, the approval of the general meeting of our shareholders. If the compensation of our directors is inconsistent with our stated compensation policy, then, provided that those provisions that must be included in the compensation policy according to the Companies Law have been considered by the compensation committee and board of directors, shareholder approval will also be required to be approved by the Compensation Special Majority Requirement.
Executive officers other than the Chief Executive Officer. The Companies Law requires the approval of the compensation of a public company’s executive officers (other than the Chief Executive Officer) in the following order: (i) the compensation committee, (ii) the company’s board of directors, and (iii) if such compensation arrangement is inconsistent with the company’s stated compensation policy, the company’s shareholders by the Compensation Special Majority Requirement. However, if the shareholders of the company do not approve a compensation arrangement with an executive officer that is inconsistent with the company’s stated compensation policy, the compensation committee and board of directors may override the shareholders’ decision if each of the compensation committee and the board of directors provide detailed reasons for their decision.
Chief Executive Officer. Under the Companies Law, the compensation of a public company’s Chief Executive Officer is required to be approved by: (i) the company’s compensation committee; (ii) the company’s board of directors, and (iii) the company’s shareholders by the Compensation Special Majority Requirement. However, if the shareholders of the company do not approve the compensation arrangement with the Chief Executive Officer, the compensation committee and board of directors may override the shareholders’ decision if each of the compensation committee and the board of directors provide a detailed reasoning for their decision. The approval of each of the compensation committee and the board of directors must be in accordance with the company’s stated compensation policy; however, under special circumstances, the compensation committee and the board of directors may approve compensation terms of a Chief Executive Officer that are inconsistent with the company’s compensation policy provided that they have considered those provisions that must be included in the compensation policy according to the Companies Law and that shareholder approval was obtained by the Compensation Special Majority Requirement. In addition, the compensation committee may resolve that the shareholder approval is not required for the approval of the engagement terms of a candidate to serve as the Chief Executive Officer, if the compensation committee determines that the compensation arrangement is consistent with the company’s stated compensation policy, that the Chief Executive Officer did not have a prior business relationship with the company or a controlling shareholder of the company, and that subjecting the approval to a shareholder vote would impede the company’s ability to attain the candidate to serve as the company’s Chief Executive Officer.
Duties of shareholders
Under the 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, when voting at 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; 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 shareholder duties mentioned above, 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 any other power with respect to a company, is under a duty to act with fairness towards the company. The Companies Law does not describe the substance of this duty except to state that the remedies generally available upon a breach of contract will also apply in the event of a breach of the duty to act with fairness, taking each shareholder’s position in the company into account.
Approval of private placements
Under the Companies Law and the regulations promulgated thereunder, a private placement of securities does not require approval at a general meeting of the shareholders of a company; provided however, that in special circumstances, such as a private placement completed in lieu of a special tender offer or a private placement which qualifies as a related party transaction (See “Item 6. Directors, Senior Management and Employees —C. Board Practices—Fiduciary duties and approval of specified related party transactions and compensation under Israeli law”), for which approval at a general meeting of the shareholders of a company is required.
Exemption, Insurance and Indemnification of Directors and Officers
Under the Companies Law, a company may not exculpate an office holder from liability for a breach of a fiduciary duty. An Israeli company may exculpate an office holder in advance from liability to the company, in whole or in part, for damages caused to the company as a result of a breach of duty of care but only if a provision authorizing such exculpation is included in its articles of association. Our amended and restated articles of association include such a provision. The company may not exculpate in advance a director from liability arising out of a prohibited dividend or distribution to shareholders.
Under the Companies Law and the Securities Law, 5738-1968, or the Securities Law, a company may indemnify an office holder in respect of the following liabilities, payments and expenses incurred for acts performed by him or her as an office holder, either in advance of an event or following an event, provided its articles of association include a provision authorizing such indemnification:
| ● | a monetary liability incurred by or imposed on the office holder in favor of another person pursuant to a court judgment, including pursuant to a settlement confirmed as judgment or arbitrator’s decision approved by a competent court. However, if an undertaking to indemnify an office holder with respect to such liability is provided in advance, then such an undertaking must be limited to events which, in the opinion of the board of directors, can be foreseen based on the company’s activities when the undertaking to indemnify is given, and to an amount or according to criteria determined by the board of directors as reasonable under the circumstances, and such undertaking will detail the abovementioned foreseen events and amount or criteria; |
| ● | reasonable litigation expenses, including reasonable attorneys’ fees, which were incurred by the office holder as a result of an investigation or proceeding filed against the office holder by an authority authorized to conduct such investigation or proceeding, provided that such investigation or proceeding was either (i) concluded without the filing of an indictment against such office holder and without the imposition on him of any monetary obligation in lieu of a criminal proceeding; (ii) concluded without the filing of an indictment against the office holder but with the imposition of a monetary obligation on the office holder in lieu of criminal proceedings for an offense that does not require proof of criminal intent; or (iii) in connection with a monetary sanction; |
| ● | reasonable litigation expenses, including attorneys’ fees, incurred by the office holder or which were imposed on the office holder by a court (i) in a proceeding instituted against him or her by the company, on its behalf, or by a third party, (ii) in connection with criminal indictment of which the office holder was acquitted, or (iii) in a criminal indictment which the office holder was convicted of an offense that does not require proof of criminal intent; |
| ● | a monetary liability imposed on the office holder in favor of a payment for a breach offended at an Administrative Procedure (as defined below) as set forth in Section 52(54)(a)(1)(a) to the Securities Law; |
| ● | expenses incurred by an office holder or certain compensation payments made to an injured party that were instituted against an office holder in connection with an Administrative Procedure under the Securities Law, including reasonable litigation expenses and reasonable attorneys’ fees; and |
| ● | any other obligation or expense in respect of which it is permitted or will be permitted under applicable law to indemnify an office holder, including, without limitation, matters referenced in Section 56H(b)(1) of the Securities Law. |
An “Administrative Procedure” is defined as a procedure pursuant to chapters H3 (Monetary Sanction by the Israeli Securities Authority), H4 (Administrative Enforcement Procedures of the Administrative Enforcement Committee) or I1 (Arrangement to prevent Procedures or Interruption of procedures subject to conditions) to the Securities Law.
Under the Companies Law and the Securities Law, a company may insure an office holder against the following liabilities incurred for acts performed by him or her as an office holder if and to the extent provided in the company’s articles of association:
| ● | a breach of a fiduciary duty to the company, provided that the office holder acted in good faith and had a reasonable basis to believe that the act would not harm the company; |
| ● | a breach of duty of care to the company or to a third party, to the extent such a breach arises out of the negligent conduct of the office holder; |
| ● | a monetary liability imposed on the office holder in favor of a third party; |
| ● | a monetary liability imposed on the office holder in favor of an injured party at an Administrative Procedure pursuant to Section 52(54)(a)(1)(a) of the Securities Law; and |
| ● | expenses incurred by an office holder in connection with an Administrative Procedure, including reasonable litigation expenses and reasonable attorneys’ fees. |
Under the Companies Law, a company may not indemnify, exculpate or insure an office holder against any of the following:
| ● | a breach of fiduciary duty, except for indemnification and insurance for a breach of the fiduciary duty to the company to the extent that the office holder acted in good faith and had a reasonable basis to believe that the act would not prejudice the company; |
| ● | a breach of duty of care committed intentionally or recklessly, excluding a breach arising out of the negligent conduct of the office holder; |
| ● | an act or omission committed with intent to derive illegal personal benefit; or |
| ● | a civil or administrative fine, monetary sanction or forfeit levied against the office holder. |
Under the Companies Law, exculpation, indemnification and insurance of office holders must be approved by the compensation committee and the board of directors and, with respect to directors or controlling shareholders, their relatives and third parties in which such controlling shareholders have a personal interest, also by the shareholders.
Our amended and restated articles of association permit us to exculpate, indemnify and insure our office holders to the fullest extent permitted or to be permitted by law. On February 18, 2021, our board of directors approved a new directors’ and officers’ liability insurance policy, following the recent amended of our compensation policy approved by our shareholders on February 12, 2021.
Employment and consulting agreements with executive officers
We have entered into written employment or service agreements with each of our executive officers. See “Item 7. Major Shareholders and Related Party Transactions — B. Related Party Transactions – Employment Agreements” for additional information.
Directors’ service contracts
There are no arrangements or understandings between us, on the one hand, and any of our directors, on the other hand, providing for benefits upon termination of their employment or service as directors of our Company.
D. Employees
Number of Employees
As of December 31, 2023, the Group employed 84 employees, which includes our Chief Executive Officer and other executive officers that are engaged by the Company as consultants.
As of December 31, 2022, the Group employed 77 employees, which included our Chief Executive Officer and other executive officers that are engaged by the Company as consultants.
As of December 31, 2021, we employed 26 employees in Israel including those employed by our subsidiaries Jeffs’ Brands, Charging Robotics and Eventer, which included our Chief Executive Officer and other executive officers that are engaged by the Company as consultants.
Distribution of Employees
The breakdown of our employees, by areas of engagement and geographic location, as of the end of each of the past three fiscal years is as follows:
| As of December 31, | ||||||||||||
| 2023 | 2022 | 2021 | ||||||||||
| Numbers of employees by category of activity | ||||||||||||
| Management and administrative | 32 | 32 | 20 | |||||||||
| Research and development | 14 | 16 | 3 | |||||||||
| Sales and marketing | 36 | 29 | 3 | |||||||||
| Production | 2 | - | - | |||||||||
| Total workforce | 84 | 77 | 26 | |||||||||
| Numbers of employees by geographic location | ||||||||||||
| Israel | 79 | 75 | 26 | |||||||||
| Europe | 4 | 1 | - | |||||||||
| Other | 1 | 1 | - | |||||||||
| Total workforce | 84 | 77 | 26 | |||||||||
| Numbers of employees by employer | ||||||||||||
| Xylo Technologies Ltd. | 5 | 5 | 6 | |||||||||
| Eventer | 16 | 16 | 15 | |||||||||
| Jeff Brands | 15 | 4 | 4 | |||||||||
| Gix Internet | 46 | 51 | - | |||||||||
| Charging Robotics | 2 | 1 | 1 | |||||||||
| 84 | 77 | 26 | ||||||||||
During the years covered by the above table, we did not employ a significant number of temporary employees. We consider our relations with our employees excellent and have never experienced a strike or work stoppage. None of our employees are represented by a labor union.
In Israel we are subject to certain labor statutes and national labor court precedent rulings, as well as to certain provisions of the collective bargaining agreements between the Histadrut (General Federation of Labor in Israel) and the Coordination Bureau of Economic Organizations including the Industrialists’ Associations. These provisions of collective bargaining agreements are applicable to our Israeli employees by virtue of extension orders issued in accordance with relevant labor laws by the Israeli Ministry of Economy and Industry, and which apply such agreement provisions to our employees even though they are not directly part of a union that has signed a collective bargaining agreement. The laws and labor court rulings that apply to our employees principally concern the minimum wage laws, length of the workday and workweek, overtime payment, procedures for dismissing employees, determination of severance pay, leaves of absence (such as annual vacation or maternity leave), sick pay and other conditions for employment. The general extension orders which apply to our employees principally concern mandatory contributions to a pension fund or managers’ insurance, annual recreation allowance, travel expenses payment and other conditions of employment. We generally provide our employees with benefits and working conditions beyond the required minimums.
Israeli law generally requires severance pay upon a dismissal of an employee by the employer without “cause” (as defined in the law), which equal to the employee’s latest monthly salary multiplied by the number of years of continuous employment with the same employer or at the same employment facilities (the “Statutory Severance Pay”). The severance pay is usually funded by the employer allocating monthly payments to employees’ managers’ insurance and/or pension fund described below, on account of the Statutory Severance Pay. The monthly payments to the managers’ insurance and/or pension fund in respect of severance pay usually amount to 8.33% or 6% of an employee’s monthly wages. Upon an event that entitles an employee to severance pay, the employer will generally release in favor of the employee the amounts accrued in the severance fund, as described above and will complete any shortfall amount between the Statutory Severance Pay and the amounts accrued in the severance fund. An alternative, and commonly used, pension and severance contribution scheme is known as the Section 14 Arrangement under the General Approval issued under the Severance Pay Law (the “Section 14 Arrangement”). Where the Section 14 Arrangement is properly applied, the amounts accrued in the severance fund are in lieu of the Statutory Severance Pay and the employer’s sole obligation with respect to severance pay would be to release the amounts accrued in the severance and pension funds in any event of termination of employment (dismissal or resignation), without the need to complete any amounts on account the Statutory Severance Pay. Furthermore, Israeli employees and employers are required to pay predetermined sums to the National Insurance Institute, which is similar to the United States Social Security Administration. Such amounts also include payments for national health insurance.
E. Share Ownership
Share ownership by Directors and Executive Officers
For information regarding ownership of our Ordinary Shares by our directors and executive officers, see Item 7. “Major Shareholders and Related Party Transactions — A. Major Shareholders.”
2013 Share Option and Incentive Plan
In August 2013, our board of directors approved and adopted our 2013 Share Option and Incentive Plan, or the Plan, which expired in August 2023. The Plan provided for the issuance of shares and the granting of options, restricted shares, restricted share units and other share-based awards to employees, directors, officers, consultants, advisors, and our service providers. Following adoption of the 2023 Share Incentive Plan, as detailed herein, we have ceased granting equity under the 2013 Share Option and Incentive Plan.
Options granted under the Plan which are currently outstanding generally may not expire later than six years from the date of grant, unless otherwise specified. Unvested awards that are cancelled and/or forfeited go back into the plan.
2023 Share Incentive Plan
In September 2023, our board of directors approved and adopted our 2023 Share Incentive Plan, or the 2023 Plan, which expires in September 2033. The 2023 Plan provides for the issuance of shares and the granting of options, restricted shares, restricted share units and other share-based awards to employees, directors, officers, consultants, advisors, and our service providers. The 2023 Plan provides for awards to be issued at the determination of our board of directors in accordance with applicable law.
The 2023 Plan provides for the grant to residents of Israel of options that qualify under the provisions of Section 102 Tax Ordinance, as well as for the grant of options that do not qualify under such provisions. The 2023 Plan was submitted to the ITA, as required by applicable law. The 2023 Plan also provides for the grant of options to U.S. resident employees that are “qualified”, i.e., incentive stock options, under the U.S. Internal Revenue Code of 1986, as amended, or the Code, and options that are not qualified. In addition to the grant of awards under the relevant tax regimes of the United States and Israel, the 2023 Plan allows for the grant of awards to grantees in other jurisdictions, with respect to which our board of directors is empowered to make the requisite adjustments in the plan.
Options granted under the 2023 Plan which are currently outstanding generally may not expire later than six years from the date of grant, unless otherwise specified. Unvested awards that are cancelled and/or forfeited go back into the plan.
F. Disclosure of a Registrant’s Action to Recover Erroneously Awarded Compensation
Not applicable.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. Major Shareholders
The following table sets forth information with respect to the beneficial ownership of our Ordinary Shares as of February 20, 2024 (unless otherwise noted below), the beneficial ownership of our Ordinary Shares by:
| ● | each person, or group of affiliated persons, known to us to be the beneficial owner of more than 5% of our voting securities; | |
| ● | each of our directors and executive officers individually; and |
| ● | all of our executive officers and directors as a group. |
The beneficial ownership of our Ordinary Shares is determined in accordance with the rules of the SEC. Under these rules, a person is deemed to be a beneficial owner of a security if that person has or shares voting power, which includes the power to vote or to direct the voting of the security, or investment power, which includes the power to dispose of or to direct the disposition of the security. For purposes of the table below, we deem Ordinary Shares issuable pursuant to options that are currently exercisable or exercisable within 60 days as of February 20, 2024, if any, 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. The percentage of Ordinary Shares beneficially owned is based on 28,420,610 Ordinary Shares outstanding as of February 20, 2024.
Except where otherwise indicated, we believe, based on information furnished to us by such owners, that the beneficial owners of the Ordinary Shares listed below have sole investment and voting power with respect to such shares. In addition, none of our shareholders will have different voting rights from other shareholders. To the best of our knowledge, we are not owned or controlled, directly or indirectly, by another corporation or by any foreign government. We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our Company.
As of February 20, 2024, there was one shareholder of record of our Ordinary Shares. The number of record holders is not representative of the number of beneficial holders of our Ordinary Shares, as the shares of all shareholders for a publicly traded company such as our Ordinary Shares underlying our ADSs are recorded in the name of our transfer agent, Computershare Trust Company, N.A.
Unless otherwise noted below, each beneficial owner’s address is Xylo Technologies Ltd., 10 Hanechoshet Street, Tel Aviv, Israel, 6971072.
Our principal shareholders do not have different or special voting rights.
| Holders of more than 5% of our voting securities | Number of Shares Beneficially Owned(1) |
Percentage of Shares Beneficially Owned(2) |
||||||
| Directors and executive officers | ||||||||
| Kineret Tzedef(3) | 253,089 | * | ||||||
| Liron Carmel(4) | 884,153 | 3.02 | % | |||||
| Ronen Rosenbloom(5) | 253,089 | * | ||||||
| Eliyahu Yoresh(6) | 865,983 | 2.96 | % | |||||
| Eli Cohen(7) | 281,987 | * | ||||||
| Tali Dinar(8) | 299,728 | 1.04 | % | |||||
| All directors and executive officers as a group (six persons) | 2,838,029 | 9.77 | % | |||||
| * | less than 1%. |
| (1) | Beneficial ownership is determined in accordance with the rules of the SEC. Under these rules, a person is deemed to be a beneficial owner of a security if that person, even if not the record owner, has or shares the underlying benefits of ownership. These benefits include the power to direct the voting or the disposition of the securities or to receive the economic benefit of ownership of the securities. A person also is considered to be the “beneficial owner” of securities that the person has the right to acquire within 60 days by option or other agreement. Beneficial owners include persons who hold their securities through one or more trustees, brokers, agents, legal representatives or other intermediaries, or through companies in which they have a “controlling interest,” which means the direct or indirect power to direct the management and policies of the entity. |
| (2) | The percentages shown are based on 28,420,610 Ordinary Shares issued and outstanding as of February 20, 2024. |
| (3) | Includes options to purchase (i) 37,500 Ordinary Shares at an exercise price of NIS 8.96 per share, and (ii) 100,000 Ordinary Shares at an exercise price of NIS 5.81 per share that are exercisable within 60 days of February 20, 2024, which have an expiration date of July 8, 2026, and June 29, 2027, respectively. This number further includes 115,589 vested RSUs from 277,415 RSUs granted on June 15, 2023, in accordance with the following terms: (i) the RSUs shall vest over a period of three (3) years commencing on January 1, 2023, with 1/12 of such RSUs vesting at the end of each subsequent three-month period following the grant, (ii) the RSU grants shall be in accordance and pursuant to Section 102 of the Income Tax Ordinance [New Version], and (iii) the RSUs shall be accelerated upon the closing of a material transaction, resulting in change of control of the Company. |
| (4) | Includes 1,500 Ordinary Shares. In addition, options to purchase (i) 62,500 Ordinary Shares at an exercise price of NIS 11.8 per share that are exercisable within 60 days of February 20, 2024, and (ii) options to purchase 300,000 Ordinary Shares at an exercise price of NIS 5.81 per share that are exercisable within 60 days of February 20, 2024. This number further includes 520,153 vested RSUs from 1,248,366 RSUs granted on June 15, 2023, in accordance with the following terms: (i) the RSUs shall vest over a period of three (3) years commencing on January 1, 2023, with 1/12 of such RSUs vesting at the end of each subsequent three-month period following the grant, (ii) the RSU grants shall be in accordance and pursuant to Section 102 of the Income Tax Ordinance [New Version], and (iii) the RSUs shall be accelerated upon the closing of a material transaction, resulting in change of control of the Company. |
| (5) | Includes options to purchase (i) 37,500 Ordinary Shares at an exercise price of NIS 11.8 per share that are exercisable within 60 days of February 20, 2024, which have an expiration date of January 9, 2025, and (ii) 100,000 Ordinary Shares at an exercise price of NIS 5.81 per share that are exercisable within 60 days of February 20, 2024. This number further includes 115,589 vested RSUs from 277,415 RSUs granted on June 15, 2023, in accordance with the following terms: (i) the RSUs shall vest over a period of three (3) years commencing on January 1, 2023, with 1/12 of such RSUs vesting at the end of each subsequent three-month period following the grant, (ii) the RSU grants shall be in accordance and pursuant to Section 102 of the Income Tax Ordinance [New Version], and (iii) the RSUs shall be accelerated upon the closing of a material transaction, resulting in change of control of the Company. |
| (6) | Includes 8,330 Ordinary Shares and options to purchase 37,500 Ordinary Shares at an exercise price of NIS 11.8 per share that are exercisable within 60 days of February 20, 2024, which have an expiration date of January 9, 2025, and (ii) 300,000 Ordinary Shares at an exercise price of NIS 5.81 per share that are exercisable within 60 days of February 20, 2024. This number further includes 520,153 vested RSUs from 1,248,366 RSUs granted on June 15, 2023, in accordance with the following terms: (i) the RSUs shall vest over a period of three (3) years commencing on January 1, 2023, with 1/12 of such RSUs vesting at the end of each subsequent three-month period following the grant, (ii) the RSU grants shall be in accordance and pursuant to Section 102 of the Income Tax Ordinance [New Version], and (iii) the RSUs shall be accelerated upon the closing of a material transaction, resulting in change of control of the Company. |
| (7) | Includes options to purchase 37,500 Ordinary Shares at an exercise price of NIS 11.8 per share that are exercisable within 60 days of February 20, 2024. which have an expiration date of January 9, 2025, and (ii) 100,000 Ordinary Shares at an exercise price of NIS 5.81 per share that are exercisable within 60 days of February 20, 2024. This number further includes 144,487 vested RSUs from 346,768 RSUs granted on June 15, 2023, in accordance with the following terms: (i) the RSUs shall vest over a period of three (3) years commencing on January 1, 2023, with 1/12 of such RSUs vesting at the end of each subsequent three-month period following the grant, (ii) the RSU grants shall be in accordance and pursuant to Section 102 of the Income Tax Ordinance [New Version], and (iii) the RSUs shall be accelerated upon the closing of a material transaction, resulting in change of control of the Company. |
| (8) | Includes options to purchase 91,667 Ordinary Shares at an exercise price of NIS 5.81 per share that are exercisable within 60 days of February 20, 2024. In addition, Ms. Dinar holds additional options to purchase 8,333 Ordinary Shares that are not exercisable within 60 days of February 20, 2024, which have an expiration date of June 29, 2027, and an exercise price of NIS 5.81This number further includes 208,061 vested RSUs from 499,347 RSUs granted on June 15, 2023, in accordance with the following terms: (i) the RSUs shall vest over a period of three (3) years commencing on January 1, 2023, with 1/12 of such RSUs vesting at the end of each subsequent three-month period following the grant, (ii) the RSU grants shall be in accordance and pursuant to Section 102 of the Income Tax Ordinance [New Version], and (iii) the RSUs shall be accelerated upon the closing of a material transaction, resulting in change of control of the Company. |
Significant Changes in Percentage Ownership by Major Shareholders
Over the course of 2023 and as of April 19, 2024, there were no changes in the percentage ownership of our major shareholders.
Over the course of 2022, there were no changes in the percentage ownership of our major shareholders.
Over the course of 2021 there were no changes in the percentage ownership of our major shareholders.
B. Related Party Transactions
Agreements with our Executive Officers
We have entered into written agreements with each of our executive officers. All of these agreements contain customary provisions regarding non-competition, confidentiality of information and assignment of inventions. However, the enforceability of the non-competition provisions may be limited under applicable law. In addition, we have entered into agreements with each executive officer and director pursuant to which we have agreed to indemnify each of them to the fullest extent permitted by law to the extent that these liabilities are not covered by directors and officers insurance.
Our office holders are generally eligible for bonuses each year. The bonuses are established and granted in accordance with our compensation policy and, are generally payable upon meeting objectives and targets that are approved by our compensation committee and board of directors (and if required by our shareholders).
Directors and Officers Insurance Policy and Indemnification Agreements
Our amended and restated articles of association permit us to exculpate, indemnify and insure our directors and officeholders to the fullest extent permitted by the Companies Law.
We have entered into agreements with each of our current director and officers exculpating them from a breach of their duty of care to us to the fullest extent permitted by law, subject to limited exceptions, and undertaking to indemnify them to the fullest extent permitted by law, to the extent that these liabilities are not covered by insurance. This indemnification is limited, with respect to any monetary liability imposed in favor of a third party, to events determined as foreseeable by the board of directors based on our activities. The maximum aggregate amount of indemnification that we may pay to our directors and officers based on such indemnification agreement is equal to 25% of our shareholders’ equity pursuant to our latest audited or unaudited consolidated financial statements, as applicable, as of the date of the indemnification payment. Such indemnification amounts are in addition to any insurance amounts. Each director or officer who agrees to receive this letter of indemnification also gives his approval to the termination of all previous letters of indemnification that we have provided to him or her in the past, if any.
Our current compensation policy determines, among others, that we may provide our directors and officers, including those serving in any of our subsidiaries from time or time and those who are controlling shareholders, with liability insurance policies provided that the engagement is in the ordinary course of business, in market terms and is not expected to materially influence our profits, properties and undertakings. The coverage limit is up to the greater of $50 million or 50% of the Company’s shareholders equity based on the most recent financial statements of the Company at the time of approval of the insurance policy by our compensation committee.
On March 2, 2023, our compensation committee approved a new directors’ and officers’ liability insurance policy. The new directors’ and officers’ liability insurance policy provides total coverage of $4 million in the aggregate, for the benefit of all of our directors and officers, in respect of which we are charged a twelve-month premium of $195,000, and which includes a deductible of $300,000 per claim, other than securities related claims filed in the United States or Canada, for which the deductible will not exceed $1 million.
Agreements with our Subsidiaries
On October 14, 2020, we signed a share purchase agreement and a revolving loan agreement with Eventer (the “Revolving Loan Agreement”). As part of the share purchase agreement and the revolving loan agreement, we invested $750,000, and following the completion thereof we held 58.7% of Eventer’s issued and outstanding share capital.
On April 8, 2021, Eventer consummated a share purchase agreement for an aggregate amount of $2.25 million out of which we invested $300,000. We currently hold approximately 46.21% of Eventer’s outstanding share capital.
In November 2021 we agreed with Eventer that the repayment of the initial advance under the Revolving Loan Agreement will occur on the earlier of (i) six months following the maturity date of the initial advance; or (ii) immediately following an initial public offering of Eventer.
On April 12, 2022, we amended the Revolving Loan Agreement, such that the repayment of the initial advance will occur at the earlier of (i) twelve months following the Maturity Date of the Initial Advance; or (ii) immediately following an initial public offering of Eventer.
On February 2, 2021, we entered into two loans and pledges agreements with Jeffs’ Brands and its other stockholder, to finance Smart Repair Pro’s additional purchases of three new brands on the Amazon online marketplace. Pursuant to the forgoing agreements, the Company extended USD 4 million loans, with an annual interest of 4%, to be repaid on the fifth anniversary of the effective date. On August 30, 2022, all the loans were converted into shares of Jeffs’ Brands as part of Jeffs’ Brands IPO, in which we invested an additional USD 1 million. As a result, we held, as of December 31, 2023, approximately 34.11% of Jeffs’ Brands outstanding share capital.
On May 20, 2021, we entered into a sublease agreement with Jeffs’ Brands pursuant to which we subleased office space of approximately 97 square meters to Jeffs’ Brands, which terminated on October 30, 2022.
On October 12, 2021, we entered into a loan agreement with Gix Internet (the “Gix Loan Agreement”), pursuant to which we lent to Gix Internet NIS 4 million. On August 25, 2022, we entered into an amendment to the Gix Loan Agreement, effective as of July 1, 2022 (the “First Amendment to the Gix Loan Agreement), pursuant to which, on November 2, 2022, the Company received a total of NIS 1 million as repayment of the original loan and the accrued interest thereon up to such date. The Repayment of the balance of the loan fund, in the amount of NIS 3 million, was postponed until June 30, 2023. On August 29, 2023, we entered into a second amendment to the to the Gix Loan Agreement (“Amendment No. 2 to the Loan Agreement”) effective as of July 1, 2023, pursuant to which the repayment of the balance of the original remaining loan amount and accrued interest was deferred to January 1, 2024. On November 8, 2023, we entered into a third amendment to the Gix Loan Agreement (“Amendment No. 3 to the Loan Agreement”) pursuant to which the Company lent an additional NIS 100,000 to Gix Internet. On January 1, 2024, we entered into a fourth amendment to the Gix Loan Agreement (“Amendment No. 4 to the Loan Agreement”). In addition, the Company is entitled to convert all or part of the balance of the extended loan into shares of Gix Internet. The Gix Loan Agreement and, the First Amendment to the Gix Loan Agreement were filed as Exhibits 4.6 and 4.7, respectively, to our annual report on Form 20-F filed on May 3, 2023. Amendment No. 2 to the Loan Agreement, Amendment No. 3 to the Loan Agreement and Amendment No. 4 to the Loan Agreement are filed as Exhibits 4.9, 4.10 and 4.11 respectively, to this annual report on Form 20-F.
On November 15, 2023, we entered into a loan agreement (the “Viewbix Loan Agreement”) with Viewbix Ltd, pursuant to which we lent Viewbix Ltd. $200,000. The Viewbix Loan Agreement is filed as Exhibit 4.17 to this annual report on Form 20-F.
On April 7, 2023, our formerly wholly owned subsidiary Charging Robotics consummated a share exchange transaction with Fuel Doctor and became its wholly owned subsidiary. As a result of the transaction, held, as of December 31, 2023, 67% of Fuel Doctor’s outstanding share capital, with options to acquire up to 71% of its outstanding share capital based on predetermined milestones.
C. Interests of Experts and Counsel
Not applicable.
ITEM 8. FINANCIAL INFORMATION
A. Consolidated Statements and Other Financial Information.
See “Item 18. Financial Statements.”
Export Sales
The following table presents total export sales for each of the fiscal years indicated ($, in thousands):
| For the year ended December 31, | ||||||||||||
| 2023 | 2022 | 2021 | ||||||||||
| Total export sales* | 76,071 | 89,393 | 8,935 | |||||||||
| as a percentage of total revenues | 83 | % | 97 | % | 85 | % | ||||||
| * | Export sales, as presented, are defined as sales to customers located outside of Israel. |
Legal Proceedings
From time to time, we may assert or be subject to various asserted or unasserted legal proceedings and claims. Any such claims, regardless of merit, could be time-consuming and expensive to defend and could divert management’s attention and resources from our operations. While the management believes that we have adequate insurance coverage and we accrue loss contingencies for all known matters that are probable and can be reasonably estimated, we cannot assure that the outcome of all current or future litigation will not have a material adverse effect on us and our results of operations.
On April 1, 2024, a lawsuit seeking declaratory judgement was filed in the District Court of Tel Aviv-Jaffa in Israel by minority shareholders Eventer, a subsidiary of the Company (together, the “Defendants”). The minority shareholders of Eventer (the “Plaintiffs”), hold in aggregate 31.86% of the Outstanding Ordinary Shares of Eventer. The Plaintiffs allege, among others, that Defendants violated the agreement whereby the Company acquired control of Eventer (the “Purchase Agreement”), which established a “separation” mechanism, within which certain Plaintiffs were granted an option to convert their shares in Eventer into shares of the Company. The claim alleges that the Company has violated the terms of the Purchase Agreement by refusing to negotiate Eventer’s valuation to enable certain of the Plaintiffs to exercise their option to convert their shares of Eventer into shares of the Company. The Plaintiffs seek an aggregate of NIS 1,228,500 from Eventer (approximately $335,380) and seek to convert their shares held in Eventer into Company shares for an aggregate value of NIS 8,602,200 (approximately $2,348,200) following which all shares held by the Plaintiffs in Eventer would be transferred to the Company. The Company has not yet submitted its response to the District Court of Tel Aviv – Jaffa. The Company’s position is that the lawsuit has no merit, and it intends to defend its position vigorously. As of the date of this annual report, the Company is unable to estimate a loss or range of loss of this claim.
Dividends
On December 28, 2022, we paid cash dividends on our Ordinary Shares and our Series C Warrants. We do not anticipate that we will further pay any cash dividends on our Ordinary Shares or ADSs in the foreseeable future.
We intend to retain our earnings to finance the development and expenses of our business. Any future determination relating to our dividend policy will be at the discretion of our board of directors and will depend on a number of factors, including future earnings, our financial condition, operating results, contractual restrictions, capital requirements, business prospects, applicable Israeli law and other factors our board of directors may deem relevant.
B. Significant Changes
No significant change, other than as otherwise described in this annual report, has occurred in our operations since the date of our consolidated financial statements included in this annual report.
ITEM 9. THE OFFER AND LISTING
A. Offer and Listing Details
Our Ordinary Shares were traded on the TASE under the symbol “MDGS” from February 2006 to January 25, 2021, when we delisted our Ordinary Shares from TASE. Our ADSs were traded on Nasdaq under the symbol “MDGS.” In connection with our name change our ADSs began trading under the symbol “XYLO” on April 18, 2024. Each ADS currently represents 15 Ordinary Shares.
For a description of the ADSs, see “Item 12. Description of Securities Other Than Equity Securities – D. American Depositary Shares.”
Our Series C Warrants traded on Nasdaq under the symbol “MDGSW” beginning in July 2018 until July 2023. Each Series C Warrant was exercisable into one/fifteen ADSs for an exercise price of $52.50 and expired in July 2023.
B. Plan of Distribution
Not Applicable.
C. Markets
Our Ordinary Shares are no longer listed on TASE. Our ADSs were traded on Nasdaq under the symbol “MDGS” until April 17, 2024. In connection with our name change, our ADSs began trading under the symbol “XYLO” as of April 18, 2024.
D. Selling Shareholders
Not Applicable.
E. Dilution
Not Applicable.
F. Expenses of the Issue
Not Applicable.
ITEM 10. ADDITIONAL INFORMATION
A. Share Capital
Not Applicable.
B. Memorandum and Articles of Association
A copy of our amended and restated articles of association is attached as Exhibit 1.1 to this annual report on Form 20-F.
C. Material Contracts
The following is a summary of each material contract, other than material contracts entered into in the ordinary course of business, to which we are or have been a party, for the two years immediately preceding the date of this annual report on Form 20-F:
| ● | Loan Agreement by and between the Company and Gix Internet dated October 12, 2021 (the “Loan Agreement”), filed as Exhibit 4.6 to our annual report on Form 20-F filed on May 3, 2023. | |
| ● | Amendments to the Loan Agreement by and between the Company and Gix Internet dated (i) August 25, 2022, and effective as of July 1, 2022, filed as Exhibit 4.7 to our annual report on Form 20-F filed May 3, 2023; (ii) August 29, 2023 and effective as of July 1, 2023, filed as Exhibit 4.9 to this annual report on Form 20-F; (iii) November 8, 2023, filed as Exhibit 4.10 to this annual report on Form 20-F and incorporated herein by reference; and (iv) January 1, 2024, filed as Exhibit 4.11 to this annual report on Form 20-F and incorporated herein by reference. | |
| ● | Share Purchase Agreement, by and among the Company, Parazero, Delta Drone International Ltd., L.I.A Pure Capital Ltd. and other entities listed therein, dated January 28, 2022, filed as Exhibit 4.8 to our annual report on Form 20-F filed on May 3, 2023. | |
| ● | Securities Exchange Agreement by and between Medigus Ltd., the additional shareholders of Charging Robotics Ltd. and Fuel Doctor Holdings, Inc. dated March 28, 2023, filed as Exhibit 4.9 to our annual report on Form 20-F filed on May 3, 2023. | |
| ● | Share Purchase Agreement, by and among the Company and Metagramm, dated April 13, 2023, a summary of which is filed as Exhibit 4.14 to this annual report on Form 20-F. | |
| ● | Share Purchase Agreement, by and between the Company, Parazero and other investors, dated June 20, 2023, filed as Exhibit 4.15 to this annual report on Form 20-F. |
| ● | Operating agreement by and between the Company and Zig Investment Group LLC, dated September 13, 2023, filed as Exhibit 4.16 to this annual report on Form 20-F. | |
| ● | Loan Agreement by and between Viewbix Ltd. and the Lenders listed therein, dated November 15, 2023, filed as exhibit 4.17 to this annual report on Form 20-F. | |
| ● | Investment Agreement by and between the Company and Gix Internet, dated December 11, 2023, filed as exhibit 4.18 to this annual report on Form 20-F. |
D. Exchange Controls
There are currently no Israeli currency control restrictions on payments of dividends or other distributions with respect to our securities or the proceeds from the sale of our securities, except or otherwise as set forth in this section and under “Item 10E. Additional Information — Taxation.” However, legislation remains in effect pursuant to which currency controls can be imposed by administrative action at any time.
The ownership or voting of our Ordinary Shares by non-residents of Israel, except with respect to citizens of countries that are in a state of war with Israel, is not restricted in any way by our amended and restated articles or by the laws of the State of Israel.
E. Taxation
The following description is not intended to constitute a complete analysis of all tax consequences relating to the acquisition, ownership and disposition of our Ordinary Shares. You should consult your own tax advisor concerning the tax consequences of your particular situation, as well as any tax consequences that may arise under the laws of any state, local, foreign or other taxing jurisdiction.
Israeli Tax Considerations and Government Programs
The following is a summary of the material Israeli tax laws applicable to us, and some Israeli Government programs benefiting us. This section also contains a discussion of some Israeli tax consequences to persons owning 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 this kind of investor include traders in securities or persons that own, directly or indirectly, 10% or more of our outstanding means of control, all of whom are subject to special tax regimes not covered in this discussion. Some parts of this discussion are based on a new tax legislation which has not been subject to judicial or administrative interpretation. The discussion should not be construed as legal or professional tax advice and does not cover all possible tax considerations.
SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE ISRAELI OR OTHER TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF OUR ORDINARY SHARES, INCLUDING, IN PARTICULAR, THE EFFECT OF ANY FOREIGN, STATE OR LOCAL TAXES.
General Corporate Tax Structure in Israel
Israeli resident companies are generally subject to corporate tax on their taxable income at the rate of 23% of a company’s taxable income. However, the effective tax rate payable by a company that derives income from a Benefited Enterprise, a Preferred Enterprise, a Special Preferred Enterprise, a Preferred Technological Enterprise or a Special Preferred Technological Enterprise (as discussed below) may be considerably less. Capital gains derived by an Israeli resident 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, generally referred to as the Industry Encouragement Law, provides several tax benefits for “Industrial Companies.”
The Industry Encouragement Law defines an “Industrial Company” as an Israeli resident company incorporated in Israel, of which 90% or more of its income in the tax year, other than income from certain government loans, derived from an “Industrial Enterprise” owned by it and located in Israel or in the “Area”, in accordance with the definition under section 3A of Tax Ordinance (New Version) 1961 (the “Tax Ordinance”). An “Industrial Enterprise” is defined as an enterprise which is held by an Industrial Company whose principal activity in any given tax year is industrial production.
The following corporate tax benefits, among others, are available to Industrial Companies:
| ● | Amortization over an eight-year period commencing on the year in which such rights were first exercised, of the cost of purchased patents, rights to use a patent and know-how which are used for the development or advancement of the Industrial Enterprise; | |
| ● | Under limited conditions, an election to file consolidated tax returns with related Israeli Industrial Companies controlled by it; and | |
| ● | Under certain conditions, expenses related to a public offering are deductible in equal amounts over a three years period commencing on the year of the offering. |
We may qualify as an Industrial Company and may be eligible for the benefits described above.
Eligibility for benefits under the Industry Encouragement Law is not contingent upon approval of any governmental authority.
Tax Benefits and Grants for Research and Development
Israeli tax law allows, under certain conditions, a tax deduction for research and development expenditures, including capital expenditures, over three-years period. Expenditures are deemed related to scientific research and development projects, if:
| ● | The expenditures are approved by the relevant Israeli government ministry, determined by the field of research; | |
| ● | The research and development must be for the promotion of the company; and | |
| ● | The research and development is carried out by or on behalf of the company seeking such tax deduction. |
The amount of such deductible expenses is reduced by the sum of any funds received through government grants for the finance of such scientific research and development projects. No deduction under these research and development deduction rules is allowed if such deduction is related to an expense invested in an asset depreciable under the general depreciation rules of the Tax Ordinance. Expenditures not so approved are deductible in equal amounts over a three-year period.
From time to time, we may apply the Israel Innovation Authority (previously known as the Israeli Office of the Chief Scientist) (the “IIA”) for approval to allow a tax deduction for all research and development expenses during the year incurred. There can be no assurance that such application will be accepted.
Law for the Encouragement of Capital Investments, 5719-1959
The Law for the Encouragement of Capital Investments, 5719-1959, generally referred to as the Investment Law, provides certain incentives for capital investments in production facilities (or other eligible assets) by “Industrial Enterprises” (as defined under the Investment Law).
The Investment Law has been amended several times over the recent years, with the three most significant changes effective as of April 1, 2005 (referred to as the 2005 Amendment), as of January 1, 2011 (referred to as the 2011 Amendment) and as of January 1, 2017 (referred to as the 2017 Amendment).
Tax Benefits Subsequent to the 2005 Amendment
The 2005 Amendment applies to investment programs commencing after 2004, but does not apply to investment programs approved prior to April 1, 2005. The 2005 Amendment provides that terms and benefits included in any certificate of approval that was granted before the 2005 Amendment became effective (April 1, 2005) will remain subject to the provisions of the Investment Law as in effect on the date of such approval. Pursuant to the 2005 Amendment, the Israeli Authority for Investments and Development of the Israeli Ministry of Economy (referred to as the Investment Center) will continue to grant Approved Enterprise status to qualifying investments. The 2005 Amendment, however, limits the scope of enterprises that may be approved by the Investment Center by setting criteria for the approval of a facility as an Approved Enterprise, such as provisions generally requiring that at least 25% of the Approved Enterprise’s income be derived from exports. An enterprise that qualifies under the new provisions is referred to as a “Benefited Enterprise”, rather than “Approved Enterprise”. The 2005 Amendment provides that Approved Enterprise status will only be necessary for receiving cash grants. As a result, it was no longer necessary for a company to obtain Approved Enterprise status in order to receive the tax benefits previously available under the alternative benefits track. Rather, a company may claim the tax benefits offered by the Investment Law directly in its tax returns, provided that its facilities meet the criteria for tax benefits set forth in the 2005 Amendment. Such a position may be subject to a future tax audit. Companies are entitled to approach the Israeli Tax Authority for a pre-ruling regarding their eligibility for benefits under the Investment Law, as amended.
Tax benefits are available under the 2005 Amendment to production facilities (or other eligible facilities) which are generally required to derive 25% or more of their business income from export to specific markets with a population of at least 14 million in 2012 (such export criteria will further be increased in the future by 1.4% per annum). In order to receive the tax benefits, the 2005 Amendment states that a company must make an investment which meets all of the conditions, including exceeding a minimum investment amount specified in the Investment Law. Such investment allows a company to receive “Benefited Enterprise” status, and may be made over a period of no more than three years that will end at the year in which the company requested to have the tax benefits apply to its Benefited Enterprise. The benefits period under the Benefited Enterprise status is limited to 12 years from the year the company chose to have its tax benefits apply. Where the company requests to apply the tax benefits to an expansion of existing facilities, only the expansion will be considered to be a Benefited Enterprise and the company’s effective tax rate will be the weighted average of the applicable rates. In this case, the minimum investment required in order to qualify as a Benefited Enterprise is required to exceed a certain percentage of the value of the company’s production assets before the expansion.
The extent of the tax benefits available under the 2005 Amendment to qualifying income of a Benefited Enterprise depend on, among other things, the geographic location in Israel of the Benefited Enterprise. The location will also determine the period for which tax benefits are available. Such tax benefits include an exemption from corporate tax on undistributed income for a period of between two to ten years, depending on the geographic location of the Benefited Enterprise in Israel, and a reduced corporate tax rate of between 10% to 25% for the remainder of the benefits period, depending on the level of foreign investment in the company in each year. The benefits period is limited to 12 or 14 years from the year the company first chose to have the tax benefits apply, depending on the location of the company within Israel.
A company qualifying for tax benefits under the 2005 Amendment which pays a dividend out of income derived by its Benefited Enterprise during the tax exemption period will be subject to corporate tax in respect of the gross amount of the dividend, or a lower rate in the case of a qualified Foreign Investors’ Company, to which we refer as a FIC, which is at least 49% owned by non-Israeli residents. Dividends paid to Israeli shareholders out of income attributed to a Benefited Enterprise (or out of dividends received from a company whose income is attributed to a Benefited Enterprise) are generally subject to withholding tax at source at the rate of 15% (in the case of non-Israeli shareholders - subject to the receipt in advance of a valid certificate from the ITA allowing the reduced 15% tax rate, or such lower rate as may be provided in an applicable tax treaty). The reduced rate of 15% is limited to dividends and distributions out of income attributed to a Benefited Enterprise during the benefits period and actually paid at any time up to 12 years thereafter except with respect to a FIC (as such term is defined in the Investment Law), in which case the 12-year limit does not apply.
The benefits available to a Benefited Enterprise are subject to the fulfillment of conditions stipulated in the Investment Law and its regulations. If a company does not meet these conditions, it may be required to refund the amount of tax benefits, as adjusted by the Israeli consumer price index, and interest, or other monetary penalties.
Tax Benefits under the 2011 Amendment
The Investment Law was significantly amended as of January 1, 2011 (the “2011 Amendment”). The 2011 Amendment introduced new benefits to replace those granted in accordance with the provisions of the Investment Law in effect prior to the 2011 Amendment.
The 2011 Amendment introduced new tax benefits for income generated by a “Preferred Company” through its “Preferred Enterprise” in accordance with the definition of such term in the Investments Law. A “Preferred Company” is defined as either: (i) a company incorporated in Israel which is not wholly owned by a governmental entity, or (ii) a limited partnership that: (a) was registered under the Israeli Partnerships Ordinance and; (b) all of its limited partners are companies incorporated in Israel, but not all of them are governmental entities; which has, among other things, Preferred Enterprise status and is controlled and managed from Israel.
A Preferred Company is entitled to a reduced flat tax rate with respect to the income attributed to the Preferred Enterprise, at the following rates:
| Tax Year | Development Region “A” |
Other Areas within Israel |
||||||
| 2011 – 2012 | 10 | % | 15 | % | ||||
| 2013 | 7 | % | 12.5 | % | ||||
| 2014 | 9 | % | 16 | % | ||||
| 2017 onwards(1) | 7.5 | % | 16 | % | ||||
| (1) | In December 2016, the Israeli Parliament (the Knesset) approved an amendment to the Investment Law pursuant to which the tax rate applicable to Preferred Enterprises in Development Region “A” would be reduced to 7.5% as of 2017. |
In addition, Income derived by a Preferred Company from a “Special Preferred Enterprise” (as such term is defined in the Investment Law) would be entitled, during a benefits period of 10 years, to further reduced tax rates of 8%, or to 5% if the Special Preferred Enterprise is located in a Development Region “A”. Since January 1, 2017, the definition for “Special Preferred Enterprise” includes less stringent conditions.
Dividends distributed from income which is attributed to a “Preferred Enterprise” or to a “Special Preferred Enterprise” will be subject to withholding tax at source at the following rates: (i) Israeli resident corporations — 0%, (ii) Israeli resident individuals — 20%, and (iii) non-Israeli residents — 20% or a reduced tax rate under the provisions of an applicable double tax treaty, subject to the receipt in advance of a valid certificate from the Israel Tax Authority (“ITA”) allowing for a reduced tax rate.
Under the 2011 Amendment, a company located in Development Region “A” may be entitled to cash grants and the provision of loans under certain conditions, if approved. The rates for grants and loans shall not be fixed, but up to 20% of the amount of the approved investment (may be increased with additional 4%). In addition, a company owning a Preferred Enterprise under the Grant Track may be entitled also to the tax benefits which are prescribed for a Preferred Company.
The 2011 Amendment also provided transitional provisions to address companies already enjoying current benefits under the Investment Law. These transitional provisions provide, among other things, that unless an irrevocable request is made to apply the provisions of the Investment Law as amended in 2011 with respect to income to be derived as of January 1, 2011: (i) the terms and benefits included in any certificate of approval that was granted to an Approved Enterprise, which chose to receive grants, before the 2011 Amendment became effective, will remain subject to the provisions of the Investment Law as in effect on the date of such approval, and subject to certain conditions; (ii) the terms and benefits included in any certificate of approval that was granted to an Approved Enterprise, that had participated in an alternative benefits program, before the 2011 Amendment became effective will remain subject to the provisions of the Investment Law as in effect on the date of such approval, provided that certain conditions are met; and (iii) a Benefited Enterprise can elect to continue to benefit from the benefits provided to it before the 2011 Amendment came into effect, provided that certain conditions are met.
The tax benefits under the 2011 Amendment also include accelerated depreciation and amortization for tax purposes.
The termination or substantial reduction of any of the benefits available under the Investment Law could materially increase our tax liabilities.
As the Company does not have taxable income as of today, it does not use tax benefits under the said regime.
New Tax benefits under the 2017 Amendment that became effective on January 1, 2017
The 2017 Amendment provides new tax benefits for two types of Technology Enterprises, as described below, and is in addition to the other existing tax beneficial programs under the Investment Law.
The 2017 Amendment provides that a technology company satisfying certain conditions will qualify as a Preferred Technology Enterprise and will thereby enjoy a reduced corporate tax rate of 12% on income that qualifies as Preferred Technology Income, as defined in the Investment Law. The tax rate is further reduced to 7.5% for a Preferred Technology Enterprise located in development zone “A”. In addition, a Preferred Technology Company will enjoy a reduced corporate tax rate of 12% on capital gain derived from the sale of certain 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, and the sale receives prior approval from the IIA.
The 2017 Amendment further provides that a technology company satisfying certain conditions will qualify as a “Special Preferred Technology Enterprise” (an enterprise for which, among others, total consolidated revenues of its parent company and all subsidiaries is at least NIS 10 billion) and will thereby enjoy a reduced corporate tax rate of 6% on Preferred Technology Income regardless of the company’s geographic location within Israel. In addition, a Special Preferred Technology Enterprise will enjoy a reduced corporate tax rate of 6% on capital gain derived from the sale of certain “Benefited Intangible Assets” to a related foreign company if the Benefited Intangible Assets were either developed by the Special Preferred Technology Enterprise or acquired from a foreign company on or after January 1, 2017, and the sale received prior approval from IIA. A Special Preferred Technology Enterprise that acquires Benefited Intangible Assets from a foreign company for more than NIS 500 million will be eligible for these benefits for at least ten years, subject to certain approvals as specified in the Investment Law.
Dividends distributed to Israeli shareholders by a Preferred Technology Enterprise or a Special Preferred Technology Enterprise, paid out of Preferred Technology Income, are generally subject to withholding tax at source at the rate of 20% (in the case of non-Israeli shareholders - subject to the receipt in advance of a valid certificate from the ITA allowing the reduced 20% tax rate, or such lower rate as may be provided in an applicable tax treaty). However, if such dividends are paid to an Israeli company, no tax is required to be withheld (although, if such dividends are subsequently distributed to individuals or a non-Israeli company, the aforesaid will apply). If such dividends are distributed to a foreign company that holds solely or together with other foreign companies 90% or more in the Israeli company and other conditions are met, the withholding tax rate will be 4% or a lower rate under a tax treaty, if applicable subject to the receipt in advance of a valid certificate from the ITA.
Taxation of Our Shareholders
Capital Gains
Capital gain tax is imposed on the disposition of capital assets by an Israeli resident, and on the disposition of such assets by a non-Israeli resident if those assets are either (i) located in Israel; (ii) are shares or a right to a share in an Israeli resident corporation, or (iii) represent, directly or indirectly, rights to assets located in Israel, unless a tax treaty between Israel and the seller’s country of residence provides otherwise. The Tax Ordinance distinguishes between “Real Capital Gain” and the “Inflationary Surplus”. Real Capital Gain is the excess of the total capital gain over Inflationary Surplus computed generally on the basis of the increase in the Israeli Consumer Price Index or, in certain circumstances, a foreign currency exchange rate between the date of purchase and the date of disposition. Inflationary Surplus is not subject to tax in Israel if accrued after 1993.
Generally, Real Capital Gain accrued by individuals on the sale of our Ordinary Shares will be taxed at the rate of 25%. However, if the individual shareholder is a “Substantial Shareholder” (i.e., a person who holds, directly or indirectly, alone or together with such person’s relative or another person who collaborates with such person on a permanent basis, 10% or more of one of the Israeli resident company’s means of control (including, among other things, the right to receive profits of the company, voting rights, the right to receive the company’s liquidation proceeds, the right to appoint a director or an executive officer and order someone who holds any of the aforesaid rights how to act, regardless of the source of such right) at the time of sale or at any time during the preceding 12 months period, such gain will be taxed at the rate of 30%.
Real Capital Gain derived by corporations will be generally subject to a corporate tax rate of 23% (in 2023).
Individuals and corporate shareholders dealing in securities in Israel are taxed at the tax rates applicable to business income — 23% for corporations in 2023 and a marginal tax rate of up to 47% in 2023 for individuals (excluding excess tax as discussed below), unless the benefiting provisions of an applicable treaty applies.
Notwithstanding the foregoing, capital gains derived from the sale of our Ordinary Shares by a non-Israeli shareholder may be exempt under the Tax Ordinance from Israeli taxation provided that the following cumulative conditions are met: (i) the shares were purchased upon or after the registration of the securities on the stock exchange (ii) the seller does not have a permanent establishment in Israel to which the derived capital gain is attributed, (iii) neither the shareholder nor the particular capital gain is otherwise subject to the Israeli Income Tax Law (Inflationary Adjustments) 5745-1985), (iv) if the seller is a corporation, no more than 25% of its means of control are held, directly and indirectly, by an Israeli resident shareholders, and there is no Israeli Resident that is entitled to 25% or more of the revenues or profits of the corporation directly or indirectly. In addition, such an exemption would not be available to a person whose gains from selling or otherwise disposing of the securities are deemed to be business income.
In addition, the sale of shares may be exempt from Israeli capital gain tax under the provisions of an applicable tax treaty. For example, the U.S.-Israel Double Tax Treaty exempts a U.S. resident from Israeli capital gain tax in connection with such sale, provided that (i) the U.S. resident owned, directly or indirectly, less than 10% of an Israeli resident company’s voting power at any time within the 12 month period preceding such sale; (ii) the seller, being an individual, is present in Israel for a period or periods of less than 183 days in the aggregate at the taxable year; and (iii) the capital gain from the sale was not derived through a permanent establishment of the U.S. resident in Israel; (iv) the capital gain arising from such sale, exchange or disposition is not attributed to real estate located in Israel; (v) the capital gains arising from such sale, exchange or disposition is not attributed to royalties; and (vi) the shareholder is a U.S. resident (for purposes of the U.S.-Israel Treaty) is holding the shares as a capital asset. Under the U.S.-Israel Double Tax Treaty, a U.S. resident would be permitted to claim a credit for the Israeli tax against the U.S. federal income tax imposed with respect to the sale, exchange or disposition, subject to the limitations in U.S. laws applicable to foreign tax credits. The U.S-Israel Double Tax Treaty does not provide such credit against any U.S. state or local taxes.
Regardless of whether our shareholders (including non-Israeli shareholders) may be liable for Israeli tax on the sale of their Ordinary Shares, the payment of the consideration may be subject to the withholding of Israeli tax at source. Shareholders may be required to demonstrate that they are exempt from tax on their capital gains in order to avoid withholding at source at the time of sale. Specifically, the ITA may require shareholders who are not liable for Israeli tax to sign declarations in forms specified by this authority, provide documentation (including, for example, a certificate of residency) or to obtain a specific exemption from the ITA to confirm their status as non-Israeli resident, and, in the absence of such declarations or exemptions, may require the purchaser of the shares to withhold taxes at source.
At the sale of securities traded on a stock exchange a detailed return, including a computation of the tax due, must be filed and an advanced payment must be paid on January 31 and July 31 of every tax year in respect of sales of securities made within the previous six months. However, if all tax due was withheld at source according to applicable provisions of the Tax Ordinance and regulations promulgated thereunder the aforementioned return need not be filed and no advance payment must be paid provided that (i) such income was not generated from business conducted in Israel by the taxpayer, (ii) the taxpayer has no other taxable sources of income in Israel with respect to which a tax return is required to be filed and an advance payment does not need to be made, and (iii) the taxpayer is not obligated to pay excess tax (as further explained below). Capital gain is also reportable on the annual income tax return.
Dividend Income
Generally, a distribution of a dividend to Israeli shareholders by our Company from income attributed to a Benefited Enterprise will be subject to withholding tax in Israel at a rate of 15% (in the case of non-Israeli shareholders - subject to the receipt in advance of a valid certificate from the ITA allowing the reduced 15% tax rate or such a reduced tax rate as may be provided under an applicable tax treaty). A distribution of dividend by our Company from income attributed to a Preferred Enterprise or Preferred Technology Enterprise (if the Company will be entitled to tax benefits of a Preferred Enterprise or Preferred Technology Enterprise) will generally be subject to withholding tax in Israel at the following tax rates: Israeli resident individuals — 20%; Israeli resident companies — 0%; Non-Israeli residents — 20% (subject to the receipt in advance of a valid certificate from the ITA allowing for a reduced tax rate,20% , or such lower rate as may be provided in an applicable tax treaty),.
A distribution of dividends from income, which is not attributed to a Preferred Enterprise or a Benefited Enterprise to an Israeli resident individual, will generally be subject to withholding tax at a rate of 25%. However, a 30% tax rate will apply if the dividend recipient is a “Substantial Shareholder” (as defined above) at the time of distribution or at any time during the preceding 12 months period. If the recipient of the dividend is an Israeli resident corporation, such dividend will be exempt from withholding tax provided the income from which such dividend is distributed was derived or accrued within Israel and was subject to tax in Israel. An average rate will be set in case the dividend is distributed from mixed types of income (regular and preferred income).
The Tax Ordinance provides that a non-Israeli resident (either individual or corporation) is generally subject to an Israeli income tax on the receipt of dividends at the rate of 25% (30% if the dividends recipient is a “Substantial Shareholder” (as defined above), at the time of distribution or at any time during the preceding 12 months period). Dividends paid on publicly traded shares, like our Ordinary Shares, to non-Israeli residents, are generally subject to Israeli withholding tax at a rate of 25%, so long as the shares are registered with a nominee company (whether or not the recipient is a substantial shareholder); those rates are subject to a reduced tax rate under the provisions of an applicable double tax treaty (subject to the receipt in advance of a valid certificate from the ITA allowing for a reduced tax rate). Thus, under the U.S.-Israel Double Tax Treaty the following rates will apply in respect of dividends not attributed to a Benefited Enterprise or Preferred Enterprise distributed by an Israeli resident company to a U.S. resident: (i) if the U.S. resident is a corporation which holds during that portion of the taxable year which precedes the date of payment of the dividend and during the whole of its prior taxable year (if any), at least 10% of the outstanding shares of the voting share capital of the Israeli resident paying corporation and not more than 25% of the gross income of the Israeli resident paying corporation for such prior taxable year (if any) consists of certain type of interest or dividends — the tax rate is 12.5%. Notwithstanding the foregoing, dividends distributed from income attributed to a Benefited Enterprise or Preferred Enterprise are not entitled to such reduction under such tax treaty but are subject to withholding tax at the rate of 15% or 20% for such a United States corporate shareholder, provided that the conditions related to the holding of 10% of our voting capital and to our gross income for the previous year (as set forth in the previous sentence) are met. The aforementioned rates under the Israel U.S. Double Tax Treaty will not apply if the dividend income was derived through a permanent establishment of the U.S. resident in Israel.
A non-Israeli resident who receives dividends from which tax was withheld is generally exempt from the obligation to file tax returns in Israel with respect to such income, provided that (i) such income was not generated from business conducted in Israel by the taxpayer, (ii) the taxpayer has no other taxable sources of income in Israel with respect to which a tax return is required to be filed, and (iii) the taxpayer is not obligated to pay excess tax (as further explained below).
Payers of dividends on our Ordinary Shares, including the Israeli stockbroker effectuating the transaction, or the financial institution through which the securities are held, are generally required, subject to any of the foregoing exemptions, reduced tax rates and the demonstration of a shareholder regarding his, her or its foreign residency, to withhold tax upon the distribution of dividend at the rate of 25%, so long as the shares are registered with a nominee company.
We paid a dividend in December 2022 but do not expect to further pay any cash dividends in the near future. Following the receipt of a tax ruling from the Israeli Tax Authorities, the payment was not subject to tax withholding in Israel and the Company will pay the cash capital amount in full.
Excess Tax
Subject to the provisions of an applicable tax treaty, individuals who are subject to tax in Israel (whether any such individual is an Israeli resident or non-Israeli resident) are also subject to an additional tax at a rate of 3% on annual income (including, but not limited to, income derived from dividends, interest and capital gains) exceeding NIS 698,280 for 2023, which amount is linked to the annual change in the CPI.
Foreign Exchange Regulations
Non-residents of Israel who hold our Ordinary Shares are able to receive any dividends, and any amounts payable upon the dissolution, liquidation and winding up of our affairs, repayable in non-Israeli currency at the rate of exchange prevailing at the time of conversion. However, Israeli income tax is generally required to have been paid or withheld on these amounts. In addition, the statutory framework for the potential imposition of currency exchange control has not been eliminated and may be restored at any time by administrative action.
Estate and Gift Tax
Israeli law presently does not impose estate or gift taxes.
Certain Material U.S. Federal Income Tax Consequences
The following discussion describes certain material U.S. federal income tax consequences to U.S. Holders (as defined below) under present law of an investment in our Ordinary Shares or ADSs. This discussion applies only to U.S. Holders that hold our Ordinary Shares or ADSs as capital assets within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the “Code”), that have acquired their Ordinary Shares or ADSs and that have the U.S. dollar as their functional currency.
This discussion is based on the tax laws of the United States, including the Code, as in effect on the date hereof and on U.S. Treasury regulations as in effect or, in some cases, as proposed, on the date hereof, the United States-Israel Tax Treaty (the “Treaty”), as well as judicial and administrative interpretations thereof available on or before such date. All of the foregoing authorities are subject to change, which change could apply retroactively and could affect the tax consequences described below. We have not sought, and will not seek, a ruling from the IRS or an opinion of counsel as to any U.S. federal income tax consequence described herein. There can be no assurances that the IRS will not take a different position concerning the tax consequences of the acquisition, ownership and disposition of our Ordinary Shares or ADSs or that such a position would not be sustained. This summary does not address any estate or gift tax consequences, the alternative minimum tax, the Foreign Account Tax Compliance Act or any state, local, or non-U.S. tax consequences.
The following discussion neither deals with the tax consequences to any particular investor nor describes all of the tax consequences applicable to persons in special tax situations such as:
| ● | banks; |
| ● | certain financial institutions; |
| ● | insurance companies; |
| ● | regulated investment companies; |
| ● | real estate investment trusts; |
| ● | broker-dealers; |
| ● | traders that elect to mark to market; |
| ● | certain former citizens or residents of the United States; |
| ● | tax-exempt entities; |
| ● | persons holding our Ordinary Shares or ADSs as part of a straddle, hedging, constructive sale, conversion or integrated transaction; |
| ● | persons that actually (directly or indirectly) or constructively own 10% or more of our total voting power or value; |
| ● | persons that are residents or ordinarily resident in or have a permanent establishment in a jurisdiction outside the United States; |
| ● | persons who acquired our Ordinary Shares or ADSs pursuant to the exercise of any employee share option or otherwise as compensation; |
| ● | S-corporation and partnerships, including entities classified as partnerships for U.S. federal income tax purposes; |
| ● | governments or agencies or instrumentalities thereof; |
| ● | grantor trusts; |
| ● | passive foreign investment companies; or |
| ● | controlled foreign corporations. |
INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS ABOUT THE APPLICATION OF THE U.S. FEDERAL TAX RULES TO THEIR PARTICULAR CIRCUMSTANCES AS WELL AS THE STATE, LOCAL, NON-U.S. AND OTHER TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF OUR ORDINARY SHARES OR ADSs.
The discussion below of the U.S. federal income tax consequences to “U.S. Holders” will apply to you if you are the beneficial owner of our Ordinary Shares or ADSs and you are, for U.S. federal income tax purposes,
| ● | an individual who is a citizen or resident of the United States; |
| ● | a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized in the United States or under the laws of the United States, any state thereof or the District of Columbia; |
| ● | an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or |
| ● | a trust that (1) is subject to the primary supervision of a court within the United States and the control of one or more U.S. persons for all substantial decisions or (2) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person. |
If an entity or other arrangement treated as a partnership for U.S. federal income tax purposes holds our Ordinary Shares or ADSs, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. A person that would be a U.S. Holder if it held our Ordinary Shares or ADSs directly and that is a partner of a partnership holding our Ordinary Shares or ADSs is urged to consult its own tax advisor.
Ownership of ADSs
For U.S. federal income tax purposes, we expect that a holder of ADSs generally should be treated as the owner of the Ordinary Shares represented by such ADSs. Gain or loss is generally not expected to be recognized on account of exchanges of Ordinary Shares for ADSs, or of ADSs for Ordinary Shares. References to ordinary shares in the discussion below are deemed to include ADSs, unless context otherwise requires.
Passive Foreign Investment Company
Based on our anticipated income and the composition of our income and assets, we do not believe we were a PFIC for our 2023 taxable year. Because the PFIC determination is highly fact intensive, there can be no assurance that we were not a PFIC in 2023 and will not be a PFIC in 2024 or any other year, as our operating results for any such years may cause us to be a PFIC. A non-U.S. entity treated as a corporation for U.S. federal income tax purposes will generally be a PFIC for U.S. federal income tax purposes for any taxable year after applying certain look-through rules with respect to the income and assets of subsidiaries if either:
| ● | at least 75% of its gross income for such year is passive income (such as interest income); or |
| ● | at least 50% of the value of its assets (based on an average of the quarterly values of the assets) during such year is attributable to assets that produce passive income or are held for the production of passive income. |
Passive income for this purpose generally includes dividends, interest, royalties, rents, gains from commodities and securities transactions, the excess of gains over losses from the disposition of assets which produce passive income, and includes amounts derived by reason of the temporary investment of funds raised in offerings of our shares.
For this purpose, we will be treated as owning our proportionate share of the assets and earning our proportionate share of the income of any other entity treated as a corporation for U.S. federal income tax purposes in which we own, directly or indirectly, 25% or more (by value) of the stock.
A separate determination must be made after the close of each taxable year as to whether we were a PFIC for that year. Because the value of our assets for purposes of the PFIC test will generally be determined by reference to the market price of our Ordinary Shares, our PFIC status may depend in part on the market price of our Ordinary Shares, which may fluctuate significantly. In addition, there may be certain ambiguities in applying the PFIC test to us. No rulings from the U.S. Internal Revenue Service, or IRS, however, have been or will be sought with respect to our status as a PFIC. If we are a PFIC for any taxable year during which you hold our Ordinary Shares, we generally will continue to be treated as a PFIC with respect to your investment in our Ordinary Shares for all succeeding years during which you hold our Ordinary Shares, unless we cease to be a PFIC and you make a “deemed sale” election with respect to our Ordinary Shares. If such election is made, you will be deemed to have sold our Ordinary Shares you hold at their fair market value on the last day of the last taxable year in which we were a PFIC, and any gain from such deemed sale would be subject to taxation under the excess distribution regime described below. After the deemed sale election, your Ordinary Shares with respect to which the deemed sale election was made will not be treated as shares in a PFIC unless we subsequently become a PFIC.
For each taxable year that we are treated as a PFIC with respect to you, you will be subject to special tax rules with respect to any “excess distribution” (as defined below) you receive and any gain you realize from a sale or other disposition (including a pledge) of our Ordinary Shares, unless you make a valid “mark-to-market” election as discussed below. Distributions you receive in a taxable year that are greater than 125% of the average annual distributions you received during the shorter of the three preceding taxable years or your holding period for our Ordinary Shares will be treated as an excess distribution. Under these special tax rules:
| ● | the excess distribution or gain will be allocated ratably over your holding period for our Ordinary Shares; |
| ● | the amount allocated to the current taxable year, and any taxable years in your holding period prior to the first taxable year in which we were a PFIC, will be treated as ordinary income; and |
| ● | the amount allocated to each other taxable year will be subject to the highest tax rate in effect for individuals or corporations, as applicable, for each such year and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year. |
The tax liability for amounts allocated to taxable years prior to the year of disposition or excess distribution cannot be offset by any net operating losses, and gains (but not losses) realized on the sale of our Ordinary Shares cannot be treated as capital gains, even if you hold our Ordinary Shares as capital assets.
If we are treated as a PFIC with respect to you for any taxable year, to the extent any of our subsidiaries are also PFICs, you may be deemed to own shares in such lower-tier PFICs that are directly or indirectly owned by us in that proportion which the value of our Ordinary Shares you own bears to the value of all of our Ordinary Shares, and you may be subject to the adverse tax consequences described above with respect to the shares of such lower-tier PFICs you would be deemed to own. As a result, you may incur liability for any excess distribution described above if we receive a distribution from our lower-tier PFICs or if any shares in such lower-tier PFICs are disposed of (or deemed disposed of). You should consult your tax advisor regarding the application of the PFIC rules to any of our subsidiaries.
A U.S. Holder of “marketable stock” (as defined below) in a PFIC may make a mark-to-market election for such stock to elect out of the tax treatment discussed above. If you make a valid mark-to-market election for our Ordinary Shares, you will include in income for each year that we are treated as a PFIC with respect to you an amount equal to the excess, if any, of the fair market value of our Ordinary Shares as of the close of your taxable year over your adjusted basis in such Ordinary Shares. You will be allowed a deduction for the excess, if any, of the adjusted basis of our Ordinary Shares over their fair market value as of the close of the taxable year. However, deductions will be allowable only to the extent of any net mark-to-market gains on our Ordinary Shares included in your income for prior taxable years. Amounts included in your income under a mark-to-market election, as well as gain on the actual sale or other disposition of our Ordinary Shares, will be treated as ordinary income. Ordinary loss treatment will also apply to the deductible portion of any mark-to-market loss on our Ordinary Shares, as well as to any loss realized on the actual sale or disposition of our Ordinary Shares, to the extent the amount of such loss does not exceed the net mark-to-market gains for such Ordinary Shares previously included in income. Your basis in our Ordinary Shares will be adjusted to reflect any such income or loss amounts. If you make a mark-to-market election, any distributions we make would generally be subject to the rules discussed below under “— Taxation of dividends and other distributions on our Ordinary Shares,” except the lower rates applicable to qualified dividend income would not apply.
The mark-to-market election is available only for “marketable stock,” which is stock that is regularly traded on a qualified exchange or other market, as defined in applicable U.S. Treasury regulations. We expect our Ordinary Shares will continue to be listed on Nasdaq. Because a mark-to-market election cannot be made for equity interests in any lower-tier PFICs we own, you generally will continue to be subject to the PFIC rules with respect to your indirect interest in any investments held by us that are treated as an equity interest in a PFIC for U.S. federal income tax purposes. The Nasdaq is a qualified exchange, but there can be no assurance that the trading in our Ordinary Shares will be sufficiently regular to qualify our Ordinary Shares as marketable stock. You should consult your tax advisor as to the availability and desirability of a mark-to-market election, as well as the impact of such election on interests in any lower-tier PFICs. Alternatively, if a non-U.S. entity treated as a corporation is a PFIC, a holder of shares in that entity may avoid taxation under the PFIC rules described above regarding excess distributions and recognized gains by making a “qualified electing fund” election to include in its income, on a current basis: (1) as ordinary income, its pro rata share of the “ordinary earnings” of the qualified electing fund; and (2) as long-term capital gain, its pro rata share of the “net capital gain” of the qualified electing fund. However, you may make a qualified electing fund election with respect to your Ordinary Shares only if we furnish you annually with certain tax information, and we currently do not intend to prepare or provide such information.
A U.S. Holder of a PFIC may be required to file an IRS Form 8621. The failure to file this form when required could result in substantial penalties. If we are a PFIC, you should consult your tax advisor regarding any reporting requirements that may apply to you. You are urged to consult your tax advisor regarding the application of the PFIC rules to the acquisition, ownership and disposition of our Ordinary Shares.
YOU ARE STRONGLY URGED TO CONSULT YOUR TAX ADVISOR REGARDING THE IMPACT OF OUR BEING A PFIC ON YOUR INVESTMENT IN OUR ORDINARY SHARES OR ADSs AS WELL AS THE APPLICATION OF THE PFIC RULES AND THE POSSIBILITY OF MAKING A MARK-TO-MARKET ELECTION.
Taxation of Dividends and Other Distributions on our Ordinary Shares
Subject to the PFIC rules discussed above, the gross amount of any distributions we make to you (including the amount of any tax withheld) with respect to our Ordinary Shares generally will be includible in your gross income as dividend income on the date of your receipt, but only to the extent the distribution is paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). The dividends will not be eligible for the dividends-received deduction allowed to corporations in respect of dividends received from other U.S. corporations. To the extent the amount of the distribution exceeds our current and accumulated earnings and profits (as determined under U.S. federal income tax principles), such excess amount will be treated first as a tax-free return of your tax basis in your Ordinary Shares, and then, to the extent such excess amount exceeds your tax basis in your Ordinary Shares, as capital gain. We currently do not, and we do not intend to, calculate our earnings and profits under U.S. federal income tax principles. Therefore, you should expect that a distribution will generally be reported as a dividend even if that distribution would otherwise be treated as a non-taxable return of capital or as capital gain under the rules described 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) or we are eligible for benefits under the Treaty, (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.
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. If the foreign currency is converted into U.S. dollars on the date of receipt, a U.S. Holder generally will not be required to recognize foreign currency gain or loss in respect of the distribution. A U.S. Holder may have foreign currency gain or loss if the foreign currency is converted into U.S. dollars after the date of receipt, depending on the exchange rate at the time of conversion. Any gains or losses resulting from the conversion of foreign currency into U.S. dollars generally will be treated as ordinary income or loss, as the case may be, and generally will be treated as U.S. source. The amount of any distribution of property other than cash will be equal to the fair market value of such property on the date of distribution.
Subject to certain significant conditions and limitations, including potential limitations under the Treaty, U.S. Holders may be entitled to a credit against their U.S. federal income tax liability or a deduction against U.S. federal taxable income in an amount equal to the non-refundable Israeli tax withheld on distributions on our Ordinary Shares. The election to deduct, rather than credit, foreign taxes, is made on a year-by-year basis and applies to all foreign taxes paid by a U.S. Holder or withheld from a U.S. Holder that year. Distributions paid on our Ordinary Shares will generally be treated as passive income that is foreign source for U.S. foreign tax credit purposes. As a result of recent changes to the U.S. foreign tax credit rules, a withholding tax may need to satisfy certain additional requirements in order to be considered a creditable tax for a U.S. Holder. We have not determined whether these requirements have been met and, accordingly, no assurance can be given that any withholding tax on dividends paid by us will be creditable. U.S. Holders should consult their own tax advisors to determine whether and to what extent they would be entitled to such credit.
Taxation of Disposition of Ordinary Shares
Subject to the PFIC rules discussed above, upon a sale or other disposition of Ordinary Shares, you will generally recognize capital gain or loss for U.S. federal income tax purposes in an amount equal to the difference between the amount realized (including the amount of any tax withheld) and your tax basis in such Ordinary Shares.
Your tax basis in our Ordinary Shares generally will equal the cost of such Ordinary Shares. If you are a non-corporate U.S. Holder, capital gain from the sale, exchange or other disposition of shares is generally eligible for a preferential rate of taxation applicable to capital gains, if your holding period determined at the time of such sale, exchange or other disposition for such shares exceeds one year (i.e., such gain is long-term capital gain). The deductibility of capital losses is subject to significant limitations. The gain or loss will generally be income or loss from sources within the United States for U.S. foreign tax credit purposes, subject to certain possible exceptions under the Treaty.
U.S. Investors should consult their own tax advisors regarding the U.S. federal income tax consequences of receiving currency other than Dollars upon the disposition of ordinary shares or ADSs.
Information with respect to Net Investment Income Tax
Certain U.S. Holders who are individuals, estates or trusts may be required to pay an additional 3.8% Net Investment Income Tax, or NIIT, on, among other things, dividends and capital gains from the sale or other disposition of our shares. For individuals, the additional NIIT tax applies to the lesser of (i) “net investment income” or (ii) the excess of “modified adjusted gross income” over $200,000 ($250,000 if married and filing jointly or $125,000 if married and filing separately). “Net investment income” generally equals the taxpayer’s gross investment income reduced by the deductions that are allocable to such income. U.S. Holders will likely not be able to credit foreign taxes against the 3.8% NIIT.
Information with respect to Reporting Requirements
Certain U.S. Holders may be required to file IRS Form 926, Return by U.S. Transferor of Property to a Foreign Corporation and IRS Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations, reporting transfers of cash or other property to us and information relating to the U.S. Holder and us. Substantial penalties may be imposed upon a U.S. Holder that fails to comply.
Certain U.S. Holders owning “specified foreign financial assets” with an aggregate value in excess of $50,000 on the last day of the taxable year or $75,000 at any time during the taxable year (or such higher dollar amount as may be prescribed by applicable IRS guidance) may be required to file IRS Form 8938, or Statement of Specified Foreign Financial Assets, with respect to such assets with their tax returns. “Specified foreign financial assets” generally include any financial accounts maintained by foreign financial institutions, as well as any of the following, but only if they are not held in accounts maintained by financial institutions: (i) stocks and securities issued by non-U.S. persons (ii) financial instruments and contracts held for investment that have non-U.S. issuers or counterparties and (iii) interests in foreign entities. The IRS has issued guidance exempting “specified foreign financial assets” held in a financial account from reporting under this provision (although the financial account itself, if maintained by a foreign financial institution, may remain subject to this reporting requirement). The failure to file this form when required could result in substantial penalties. You are urged to consult your tax advisors regarding the application of these requirements to your ownership of our shares.
In addition, certain U.S. Holders may be required to report additional information relating to an interest in our Ordinary Shares, subject to certain exceptions. You are urged to consult your tax advisors regarding your information reporting obligations, if any, with respect to your ownership and disposition of our Ordinary Shares.
Backup Withholding Tax
Generally, information reporting requirements will apply to distributions on our Ordinary Shares or proceeds on the disposition of our Ordinary Shares paid within the United States (and, in certain cases, outside the United States) to U.S. Holders other than certain exempt recipients, such as corporations. Furthermore, backup withholding may apply to such amounts if the U.S. Holder fails to (i) provide a correct taxpayer identification number, (ii) report interest and dividends required to be shown on its U.S. federal income tax return, or (iii) make other appropriate certifications in the required manner. U.S. Holders who are required to establish their exempt status generally must provide such certification on IRS Form W-9.
Backup withholding is not an additional tax. Amounts withheld as backup withholding from a payment may be credited against a U.S. Holder’s U.S. federal income tax liability and such U.S. Holder may obtain a refund of any excess amounts withheld by timely filing the appropriate claim for refund with the IRS and furnishing any required information in a timely manner.
THE SUMMARY OF CERTAIN MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES SET OUT ABOVE IS FOR GENERAL INFORMATIONAL PURPOSES ONLY. INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS ABOUT THE APPLICATION OF THE U.S. FEDERAL TAX RULES TO THEIR PARTICULAR CIRCUMSTANCES AS WELL AS THE STATE, LOCAL, NON-U.S. AND OTHER TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF OUR ORDINARY SHARES OR ADSs.
F. Dividends and Paying Agents
Not applicable.
G. Statements by Experts
Not applicable.
H. Documents on Display
You may read and copy this annual report on Form 20-F, including the related exhibits and schedules, and any document we file with the SEC through the SEC’s website at www.sec.gov.
As a foreign private issuer, we are exempt from the rules under the Exchange Act related to the furnishing and content of proxy statements, and our officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. Furthermore, as a foreign private issuer, we are also not subject to the requirements of Regulation FD (Fair Disclosure) promulgated under the Exchange Act. In addition, we are not required under the Exchange Act to file annual or other reports and consolidated financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act. Instead, we must file with the SEC, within 120 days after the end of each fiscal year, or such other applicable time as required by the SEC, an annual report on Form 20-F containing consolidated financial statements audited by an independent registered public accounting firm. We also intend to furnish certain other material information to the SEC under cover of Form 6-K.
We maintain a corporate website at www.medigus.com. Information contained on, or that can be accessed through, our website does not constitute a part of this Annual Report on Form 20-F. We have included our website address in this annual report on Form 20-F solely as an inactive textual reference.
I. Subsidiary Information
Not applicable.
J. Annual Report to Security Holders
Not Applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss related to changes in market prices, including interest rates and foreign exchange rates, of financial instruments that may adversely impact our consolidated financial position, results of operations or cash flows.
Risk of Interest Rate Fluctuation
Currently, our investments consist primarily of cash and cash equivalents and short-term bank deposits. We follow an investment policy that was set by our board of directors, pursuant to which we currently invest in tradable short term Israeli government loans or bank deposits. Our investments are exposed to market risk due to fluctuation in interest rates, which may affect our interest income and the fair market value of our investments. Our interest income is not material and a change in interest rates would not have a significant impact on us. We manage this exposure by performing ongoing evaluations of our investments. Due to the short-term maturities of our investments to date, their carrying value has always approximated their fair value. It is our current policy to hold investments to maturity in order to limit our exposure to interest rate fluctuations.
Foreign Currency Exchange Risk
Our reporting and functional currency is the U.S. dollar. Our revenues are currently primarily payable in the U.S. dollars and Euros, and we expect our future revenues to be denominated primarily in U.S. dollars and Euros. However, certain amount of our expenses are in NIS and as a result, we are exposed to the currency fluctuation risks relating to the recording of our expenses in the U.S. dollars. We may, in the future, decide to enter into currency hedging transactions. These measures, however, may not adequately protect us from material adverse effects.
To date, we have not engaged in hedging transactions, however we hold our investments in both NIS and US dollars. In the future, we may enter into currency hedging transactions to decrease the risk of financial exposure from fluctuations in the exchange rates of our principal operating currencies. These measures, however, may not adequately protect us from the material adverse effects of such fluctuations.
Our interest rate risk exposure is in respect to bank deposits, which expose us to risk due to changes in fair value interest rates. As of December 31, 2023, these deposits carried relatively low interest rates and under these low interest rates, reasonable changes in interest rates are expected to have negligible impact on the fair value of these assets.
Impact of Supply Chain Disruptions
As a result of the attacks by the Houthi movement on marine vessels traversing the Red Sea, Jeffs’ Brands has experienced delays in shipment of inventory to and from the United Kingdom and increases in the costs of vessels. However, as of the date of this Annual Report on Form 20-F, Jeffs’ Brands business segment, products, lines of service, projects and operations are not materially adversely affected by supply chain disruptions in light of such attacks and it does not expect to be materially impacted by any supply chain disruptions in the future.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
A. Debt Securities.
Not applicable.
B. Warrants and rights.
Not applicable.
C. Other Securities.
Not applicable.
D. American Depositary Shares.
General
The following is a summary description of the ADSs and does not purport to be complete. Each ADS represents 15 Ordinary Shares (or a right to receive 15 Ordinary Shares) deposited with The Bank of New York Mellon, located in Manchester, as custodian for The Bank of New York Mellon as the Depositary. Each ADS also represents any other securities, cash or other property which may be held by the Depositary. The Depositary’s office at which the ADSs will be administered is located at 240 Greenwich Street, New York, New York 10286.
The form of the deposit agreement for the ADSs and the form of American Depositary Receipt (ADR) that represents an ADS are filed as exhibits to the Company’s registration statement on Form F-6 with the SEC on May 7, 2015, as amended on October 26, 2020. Copies of the deposit agreement are available for inspection at the principal office of the Bank of New York Mellon, located at 240 Greenwich Street, New York, New York 10286.
Fees and Expenses
| Persons depositing or withdrawing shares or ADS holders must pay: | For: | ||
| $5.00 (or less) per 100 ADSs (or portion of 100 ADSs) | ● | Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property | |
| ● | Cancellation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates | ||
| $0.05 (or less) per ADS (or a portion thereof) | ● | Any cash distribution to ADS holders | |
| A fee equivalent to the fee that would be payable if securities distributed to you had been shares and the 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 | |
| $0.05 (or less) per ADS per calendar year (or a portion thereof) | ● | Depositary services | |
| Registration or transfer fees | ● | Transfer and registration of shares on our share register to or from the name of the Depositary or its agent when you deposit or withdraw shares | |
| Expenses of the Depositary | ● | Cable, telex and facsimile transmissions (when expressly provided in the deposit agreement) | |
| ● | converting foreign currency to U.S. dollars | ||
| Taxes and other governmental charges the Depositary or the custodian has to pay on any ADSs or shares underlying ADSs, such as stock transfer taxes, stamp duty or withholding taxes | ● | As necessary | |
| Any charges incurred by the depositary or its agents for servicing the deposited securities | ● | As necessary | |
The Depositary collects its fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The Depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The Depositary may collect its annual fee for depositary services by deduction from cash distributions or by directly billing investors or by charging the book-entry system accounts of participants acting for them. The Depositary may collect any of its fees by deduction from any cash distribution payable to ADS holders that are obligated to pay those fees. The Depositary may generally refuse to provide fee-attracting services until its fees for those services are paid.
From time to time, the Depositary may make payments to us to reimburse and/or share revenue from the fees collected from ADS holders, or waive fees and expenses for services provided, generally relating to costs and expenses arising out of establishment and maintenance of the ADS program. In performing its duties under the deposit agreement, the Depositary may use brokers, dealers or other service providers that are affiliates of the Depositary and that may earn or share fees or commissions.
Payment of Taxes
You will be responsible for any taxes or other governmental charges payable on your ADSs or on the deposited securities represented by any of your ADSs. The Depositary may refuse to register any transfer of your ADSs or allow you to withdraw the deposited securities represented by your ADSs until such taxes or other charges are paid. It may apply payments owed to you or sell deposited securities represented by your ADSs to pay any taxes owed and you will remain liable for any deficiency. If the Depositary sells deposited securities, it will, if appropriate, reduce the number of ADSs to reflect the sale and pay to ADS holders any proceeds, or send to ADS holders any property, remaining after it has paid the taxes.
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
There are no defaults, dividend arrangements or delinquencies that are required to be disclosed.
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, including our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2023. The term “disclosure controls and procedures”, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to the our management, including our Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2023, our disclosure controls and procedures were effective.
(b) Management report on internal control over financial reporting
Our management, under the supervision of our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over our financial reporting. The Company’s internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act, means a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes policies and procedures that:
| ● | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and asset dispositions. |
| ● | provide reasonable assurance that transactions are recorded as necessary to permit the preparation of our financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and |
| ● | provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on our financial statements. |
Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management evaluated the effectiveness of our internal control over financial reporting as of December 31, 2023, based on the criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, our management concluded that, as of December 31, 2023, the Company’s internal control over financial reporting was effective.
(c) Attestation Report of the Registered Public Accounting Firm
Not applicable.
(d) Changes in internal control over financial reporting
There were no changes in internal control over financial reporting during the year ended December 31, 2023, that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.
ITEM 16. RESERVED
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
Our board of directors has determined that Mr. Eliyahu Yoresh is an audit committee financial expert as defined under the rules under the Exchange Act, and is independent in accordance with applicable Exchange Act rules and Nasdaq Stock Market rules.
ITEM 16B. CODE OF ETHICS
In March 2016, we adopted a written code of ethics and business conduct, which applies to all our directors, officers and employees, including without limitation our, Chief Executive Officer, Chief Financial Officer, and controller, or persons performing similar functions. This code of ethics is posted on our website, www.medigus.com.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Fees and services
Brightman Almagor Zohar and Co., Certified Public Accountant (Isr.), a firm in the Deloitte Global Network, has served as our principal independent registered public accounting firm for the years ended December 31, 2023, and 2022.
The following table provides information regarding consolidated fees related to Brightman Almagor Zohar and Co., for all services, including audit services, for the year ended December 31, 2023, and for the year ended December 31, 2022:
| Year Ended December 31, 2023 |
Year Ended December 31, 2022 |
|||||||
| (USD in thousands) | ||||||||
| Audit fees(1) | 717 | 575 | ||||||
| Audit-Related Fees(2) | 50 | 100 | ||||||
| Tax fees(3) | 68 | 96 | ||||||
| Total | 835 | 771 | ||||||
| (1) |
Includes professional services rendered in connection with the audit of our annual financial statements and the review of our interim financial statements. This category also includes services that generally the independent accountant provides, such as consents and assistance with and review of documents filed with the SEC. These fees do not include audit services provided for Fuel Doctor, by CPA Elkana Amitai.
For the year ended December 31, 2023, audit fee included are for Xylo Technologies, Eventer, Gix Internet and Jeffs’ Brands (excluding services provided by CPA Elkana Amitai for Fuel Doctor).
For the year ended December 31, 2022, audit fees included are for Xylo Technologies, Eventer, Gix Internet and Jeffs’ Brands.
|
| (2) |
Includes mainly offering costs and related services by the principal accountant that are reasonably related to the performance of the audit or review of the registrant’s financial statements (excluding services provided by CPA Elkana Amitai for Fuel Doctor).
For the year ended December 31, 2023, audit related fee included Xylo Technologies, Eventer, Gix Internet and Jeffs’ Brands.
For the year ended December 31, 2022, audit related fee included Xylo Technologies, Eventer, Gix Internet and Jeffs’ Brands.
|
| (3) | Represents fees for professional services rendered by our independent registered public accounting firm for tax compliance and tax advice on actual or contemplated transactions (excluding services provided by CPA Elkana Amitai for Fuel Doctor). |
Our audit committee’s specific responsibilities in carrying out its oversight of the quality and integrity of the accounting, auditing and reporting practices of our Company include the approval of audit and non-audit services to be provided by the external auditor. The audit committee approves in advance the particular services or categories of services to be provided to us during the following yearly period and also sets forth a specific budget for such audit and non-audit services. Additional non-audit services may be pre-approved by the audit committee.
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
None.
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
Not applicable.
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
Not applicable.
ITEM 16G. CORPORATE GOVERNANCE
Nasdaq Stock Market Listing Rules and Home Country Practices
As a foreign private issuer, we are permitted to follow Israeli corporate governance practices instead of Nasdaq Marketplace rules, provided that we disclose which requirements we are not following and the equivalent Israeli requirement. We rely on this “foreign private issuer exemption” with respect to the following items:
| ● | Quorum. While the Marketplace Rules of the Nasdaq Stock Market require that the quorum for purposes of any meeting of the holders of a listed company’s common voting stock, as specified in the company’s bylaws, be no less than 33 1/3% of the company’s outstanding common voting stock, under Israeli law, a company is entitled to determine in its articles of association the number of shareholders and percentage of holdings required for a quorum at a shareholders meeting. Our amended and restated articles of association provide that a quorum of two or more shareholders holding at least 10% of the voting rights in person or by proxy is required for commencement of business at a general meeting so long as (i) such general meeting was initiated by and convened pursuant to a resolution adopted by the Board of Directors and (ii) at the time of such general meeting the Company is qualified to use the forms of a “foreign private issuer” under US securities laws. However, the quorum set forth in our amended and restated articles of association with respect to an adjourned meeting consists of any number of shareholders present in person or by proxy. |
| ● | Approval of Related Party Transactions. All related party transactions are approved in accordance with the requirements and procedures for approval of interested party acts and transactions, set forth in sections 268 to 275 of the Companies Law, and the regulations promulgated thereunder, which require the approval of the audit committee, the compensation committee, the board of directors and shareholders, as may be applicable, for specified transactions, rather than approval by the audit committee or other independent body of our board of directors as required under the Listing Rules of the Nasdaq Stock Market. |
| ● | Equity Compensation Plans. We do not necessarily seek shareholder approval for the establishment of, and amendments to, stock option or equity compensation plans (as set forth in Nasdaq Listing Rule 5635(c)), as such matters are not subject to shareholder approval under Israeli law. We will attempt to seek shareholder approval for our stock option or equity compensation plans (and the relevant annexes thereto) to the extent required in order to ensure they are tax qualified for our employees in the United States. However, even if such approval is not received, then the stock option or equity compensation plans will continue to be in effect, but we will not be able to grant options to our U.S. employees that qualify as Incentive Stock Options for U.S. federal tax purpose. Our stock option or other equity compensation plans are also available to our non-U.S. employees, and provide features necessary to comply with applicable non-U.S. tax laws. |
| ● | Shareholder approval. Rather than follow the Nasdaq rules requiring shareholder approval for the issuance of securities in certain circumstances, we follow Israeli law, under which a private placement of securities requires approval by our board of directors and shareholders if it will cause a person to become a controlling shareholder (generally presumed at 25% ownership) or if: (a) the securities issued amount to 20% or more of our outstanding voting rights before the issuance; (b) some or all of the consideration is other than cash or listed securities or the transaction is not on market terms; and (c) transaction will increase the relative holdings of a shareholder that holds 5% or more of our outstanding share capital or voting rights or will cause any person to become, as a result of the issuance, a holder of more than 5% of our outstanding share capital or voting rights. |
Otherwise, we comply with the rules generally applicable to U.S. domestic companies listed on the Nasdaq Stock Market. We may in the future decide to use the foreign private issuer exemption with respect to some or all of the other Nasdaq Marketplace Rules related to corporate governance. We also comply with Israeli corporate governance requirements under the Israeli Companies Law applicable to public companies.
ITEM 16H. MINE SAFETY DISCLOSURE
Not applicable.
ITEM 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
ITEM 16J. INSIDER TRADING POLICIES
Not applicable.
ITEM 16K. CYBERSECURITY RISK MANAGEMENT POLICIES AND PROCEDURES
The Company engages a third-party provider to maintain our systems and management participates in the assessment to identify any risks from cybersecurity threats. Our third-party provider monitors our firewall, network, system security and internal and external backups and reports any issues to the Company.
The Company’s board of director, together with management, is engaged in our cybersecurity monitoring managed by our third-party provider and it is constantly changing. Any issues are appropriately addressed timely.
To date, we have not experienced any cybersecurity incidents that materially affected our business strategy, results of operations or financial condition.
PART III
ITEM 17. FINANCIAL STATEMENTS
Not applicable.
ITEM 18. FINANCIAL STATEMENTS
The consolidated financial statements and the related notes required by this Item are included in this annual report on Form 20-F beginning on page F-1.
ITEM 19. EXHIBITS
| * | Filed herewith. |
| ** | Furnished herewith. |
| † | Certain confidential information contained in this exhibit, marked by brackets, was omitted because it is both (i) not material and (ii) would likely cause competitive harm to the Company if publicly disclosed. “[†]” indicates where the information has been omitted from this exhibit. |
| †† | Indicates management contract or compensatory plan or arrangement. |
Certain agreements filed as exhibits to this Annual Report contain representations and warranties that the parties thereto made to each other. These representations and warranties have been made solely for the benefit of the other parties to such agreements and may have been qualified by certain information that has been disclosed to the other parties to such agreements and that may not be reflected in such agreements. In addition, these representations and warranties may be intended as a way of allocating risks among parties if the statements contained therein prove to be incorrect, rather than as actual statements of fact. Accordingly, there can be no reliance on any such representations and warranties as characterizations of the actual state of facts. Moreover, information concerning the subject matter of any such representations and warranties may have changed since the date of such agreements.
SIGNATURE
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this registration statement on its behalf.
| Xylo Technologies Ltd. | ||
| Date: April 22, 2024 | By: | /s/ Liron Carmel |
| Liron Carmel | ||
| Chief Executive Officer | ||
| By: | /s/ Tali Dinar | |
| Tali Dinar | ||
| Chief Financial Officer | ||
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
Index to Consolidated Financial Statements
F-
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Xylo Technologies Ltd.
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of financial position of Xylo Technologies Ltd. and its subsidiaries (the “Company”) as of December 31, 2023, and 2022, and the related consolidated statements of income (loss) and other comprehensive income (loss), changes in equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and 2022, and the results of its operations and its cash flows for the each of the three years in the period ended December 31, 2023, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the 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 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 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.
F-
Goodwill Impairment – Online Advertising & Internet Traffic Routing Reporting Unit – Refer to Note 2D and 10C to the Consolidated Financial Statements
Critical Audit Matter Description
The Company’s quantitative goodwill impairment test involves the comparison of the fair value of each reporting unit to its carrying value. In estimating the fair value of the online advertising & internet traffic routing reporting unit, the Company used the income approach method, which requires management to make significant estimates and assumptions related to future cash flows and discount rates. Any excess carrying value over the applicable fair value is recognized as impairment.
During 2023, the Company recognized an impairment loss of USD 508 thousand for the online advertising & internet traffic routing reporting unit’s goodwill. After considering the impact of the impairment charges, the carrying amount of the online advertising & internet traffic routing reporting unit’s goodwill as of December 31, 2023, was USD 7.7 million.
We identified impairment of the online advertising & internet traffic routing reporting unit as a critical audit matter because of the significant judgments made by management to estimate the fair value. This required a high degree of auditor judgment and an increased extent of effort, in relation to our audit as a whole, including the need to involve our fair value specialists when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to future cash flows and discount rate.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to forecasts used by management to estimate the fair value of the online advertising & internet traffic routing reporting unit included the following, among others:
| ● | We evaluated the reasonableness of management’s forecasts of future cash flows, including underlying revenues growth rates, by comparing the forecasts to historical results and by evaluating revenue trends and material events that occurred during and after the reporting period and their potential influence on management’s forecasts, as well as by testing the other underlying source information for accuracy and completeness. |
| ● | With the assistance of our fair value specialists, we evaluated the valuation methodologies and the reasonableness of the discount rate, including testing the mathematical accuracy of the calculations, and developing a range of independent estimates and comparing those to the discount rate selected by management. |
/s/ Brightman Almagor Zohar & Co.
Certified Public Accountants
A Firm in the Deloitte Global Network
Tel Aviv, Israel
April 22, 2024
We have served as the Company’s auditor since 2020.
F-
(Concluded) – 1
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
| December 31, | ||||||||||
| Note | 2023 | 2022 | ||||||||
| USD in thousands | ||||||||||
| ASSETS | ||||||||||
| CURRENT ASSETS: | ||||||||||
| Cash and cash equivalents | 6 | 9,357 | 20,065 | |||||||
| Short term deposits | 6 | 12 | 859 | |||||||
| Restricted cash | 6 | 166 | 185 | |||||||
| Trade accounts receivable | 12,320 | 21,449 | ||||||||
| Other receivables | 7a | 2,144 | 1,928 | |||||||
| Inventory | 8 | 2,386 | 1,791 | |||||||
| Loans to associates | 17b2 | 1,684 | 546 | |||||||
| Loans to others | 7b, 17b3 | 376 | 1,011 | |||||||
| Related parties | 17b1 | 59 | 298 | |||||||
| Financial assets at fair value through profit or loss | 5 | 3,167 | 4,126 | |||||||
| 31,671 | 52,258 | |||||||||
| NON-CURRENT ASSETS: | ||||||||||
| Property and equipment, net | 9 | 353 | 408 | |||||||
| Right-of-use assets, net | 11 | 496 | 591 | |||||||
| Investments accounted for using the equity method | 4B1 | 2,995 | 11,892 | |||||||
| Intangible assets, net | 10 | 27,336 | 30,862 | |||||||
| Deferred tax asset | 12 | 273 | 397 | |||||||
| Financial assets at fair value through profit or loss | 5 | 772 | 1,243 | |||||||
| 32,225 | 45,393 | |||||||||
| TOTAL ASSETS | 63,896 | 97,651 | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-
(Concluded) – 2
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
| December 31, | ||||||||||
| Note | 2023 | 2022 | ||||||||
| USD in thousands | ||||||||||
| LIABILITIES AND EQUITY | ||||||||||
| CURRENT LIABILITIES: | ||||||||||
| Trade accounts payable | 13a | 13,248 | 20,421 | |||||||
| Short term loans | 4F, 4K | 8,982 | 5,111 | |||||||
| Current portion of long-term loans | 4F | 1,500 | ||||||||
| Lease liabilities | 11 | 102 | 131 | |||||||
| Warrants at fair value | 5, 14 | 396 | ||||||||
| Liability to event producers | 4D | 967 | 1,654 | |||||||
| Warrants at fair value issued by subsidiaries | 4E, 4F | 1,897 | 4,159 | |||||||
| Related parties | 17b4 | 909 | 1,055 | |||||||
| Accrued expenses and other current liabilities | 13b | 3,163 | 3,200 | |||||||
| 29,268 | 37,627 | |||||||||
| NON-CURRENT LIABILITIES: | ||||||||||
| Lease liabilities | 11 | 468 | 512 | |||||||
| Long-term loans | 4F, 17b5 | 234 | 2,881 | |||||||
| Deferred tax liability | 12 | 1,465 | 1,817 | |||||||
| Accrued severance pay, net | 26 | 125 | ||||||||
| 2,193 | 5,335 | |||||||||
| TOTAL LIABILITIES | 31,461 | 42,962 | ||||||||
| EQUITY: | 14 | |||||||||
| Share capital – ordinary shares with no par value: authorized – December 31,2023 – 200,000,000 and December 31, 2022 – 200,000,000 shares; issued and outstanding – December 31, 2023 – 27,989,465 shares December 31, 2022 – 24,661,470 shares | ||||||||||
| Share premium | 112,883 | 111,322 | ||||||||
| Other capital reserves | 12,106 | 13,208 | ||||||||
| Warrants | 197 | 197 | ||||||||
| Accumulated deficit | (101,610 | ) | (85,586 | ) | ||||||
| Equity attributable to owners of Xylo Technologies Ltd | 23,576 | 39,141 | ||||||||
| Non-controlling interests | 4A2 | 8,859 | 15,548 | |||||||
| 32,435 | 54,689 | |||||||||
| TOTAL LIABILITIES AND EQUITY | 63,896 | 97,651 | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
CONSOLIDATED STATEMENTS OF INCOME/LOSS AND OTHER COMPREHENSIVE INCOME/LOSS
| Year Ended December 31 | ||||||||||||||
| Note | 2023 | 2022 | 2021 | |||||||||||
| USD in thousands | ||||||||||||||
| Revenues | 18 | |||||||||||||
| Products | 10,008 | 5,861 | 8,933 | |||||||||||
| Services | 81,716 | 85,997 | 1,185 | |||||||||||
| 91,724 | 91,858 | 10,118 | ||||||||||||
| Cost of revenues | 15 | |||||||||||||
| Products | 9,019 | 5,059 | 4,938 | |||||||||||
| Services | 70,864 | 72,347 | 379 | |||||||||||
| 79,883 | 77,406 | 5,317 | ||||||||||||
| Gross profit | 11,841 | 14,452 | 4,801 | |||||||||||
| Research and development expenses | 15 | 5,888 | 5,221 | 1,045 | ||||||||||
| Sales and marketing expenses | 15 | 4,660 | 4,372 | 1,988 | ||||||||||
| General and administrative expenses | 15 | 12,108 | 13,440 | 9,964 | ||||||||||
| Loss (Gain) from changes in fair value of financial assets at fair value through profit or loss | 5 | 3,830 | 2,713 | (713 | ) | |||||||||
| Equity losses | 4B2 | 4,107 | 2,659 | 2,149 | ||||||||||
| Net loss (gain) from derecognition of investments accounted for using the equity method | 4C, 4L | 2,227 | (169 | ) | ||||||||||
| Impairment of goodwill and other intangible assets | 10 | 1,812 | ||||||||||||
| Amortization of excess purchase price of associates | 4P | 530 | 263 | |||||||||||
| Operating loss | (23,321 | ) | (13,784 | ) | (9,895 | ) | ||||||||
| Gain upon loss of control in Odysight.ai | 4C | (11,465 | ) | |||||||||||
| Gain from initial recognition of assets and liabilities upon consolidation of Gix Internet | 4F | (2,300 | ) | |||||||||||
| Loss (Gain) from sale of investments in financial assets at fair value through profit or loss and investments accounted for using the equity method | 127 | (2,025 | ) | |||||||||||
| Other income, net | (329 | ) | (45 | ) | (494 | ) | ||||||||
| Gain from changes in fair value of warrants issued to investors | 5 | (396 | ) | (159 | ) | (484 | ) | |||||||
| Loss (Gain) from changes in fair value of warrants issued to third party investors by subsidiaries | 5 | (2,322 | ) | (3,619 | ) | 75 | ||||||||
| Financial loss, net | 1,532 | 2,309 | 347 | |||||||||||
| Profit (Loss) before taxes on income | (21,806 | ) | (10,097 | ) | 4,151 | |||||||||
| Tax expense (benefit) | 12 | (74 | ) | 111 | 105 | |||||||||
| Net income (loss) for the year | (21,732 | ) | (10,208 | ) | 4,046 | |||||||||
| Other comprehensive income (loss) | ||||||||||||||
| Items that may be reclassified to profit or loss | ||||||||||||||
| Share of other comprehensive income (loss) of consolidated subsidiaries and associates accounted for using the equity method | (121 | ) | 460 | 162 | ||||||||||
| Total comprehensive income (loss) for the year | (21,853 | ) | (9,748 | ) | 4,208 | |||||||||
| Net income (loss) for the year is attributable to: | ||||||||||||||
| Owners of Xylo Technologies Ltd | (16,025 | ) | (9,815 | ) | 6,794 | |||||||||
| Non-controlling interests | (5,707 | ) | (393 | ) | (2,748 | ) | ||||||||
| (21,732 | ) | (10,208 | ) | 4,046 | ||||||||||
| Total comprehensive income (loss) for the year is attributable to: | ||||||||||||||
| Owners of Xylo Technologies Ltd | (16,210 | ) | (9,503 | ) | 6,881 | |||||||||
| Non-controlling interests | (5,643 | ) | (245 | ) | (2,673 | ) | ||||||||
| (21,853 | ) | (9,748 | ) | 4,208 | ||||||||||
| Earnings (Loss) per ordinary share attributed to Xylo Technologies Ltd | ||||||||||||||
| Basic | 16 | (0.63 | ) | (0.4 | ) | 0.2 | ||||||||
| Diluted | 16 | (0.63 | ) | (0.4 | ) | 0.2 | ||||||||
| Weighted average ordinary shares outstanding (in thousands) | ||||||||||||||
| Basic | 25,292 | 24,385 | (*)23,036 | |||||||||||
| Diluted | 25,292 | 24,385 | (*)23,036 | |||||||||||
| (*) | Share and per share data in these financial statements have been retrospectively adjusted to reflect a number of shares that is equivalent to the number of shares of the Company post the Reverse Split (see note 14a(4)). |
The accompanying notes are an integral part of these consolidated financial statements.
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| Equity attributable to owners of Xylo Technologies Ltd | ||||||||||||||||||||||||||||||||||||||||||||||
| Note | Ordinary shares |
Share premium |
Capital reserves from options granted |
Other reserves |
Capital reserves from transactions with non- controlling interests |
Currency translation differences |
Warrants | Accumulated deficit |
Total | Non- controlling interests |
Total equity |
|||||||||||||||||||||||||||||||||||
| USD in thousands | ||||||||||||||||||||||||||||||||||||||||||||||
| BALANCE AS OF JANUARY 1, 2023 | 111,322 | 3,260 | 949 | 9,689 | (690 | ) | 197 | (85,586 | ) | 39,141 | 15,548 | 54,689 | ||||||||||||||||||||||||||||||||||
| Net loss for the year | - | (16,025 | ) | (16,025 | ) | (5,707 | ) | (21,732 | ) | |||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) for the year | - | (185 | ) | - | (185 | ) | 64 | (121 | ) | |||||||||||||||||||||||||||||||||||||
| TOTAL COMPREHENSIVE LOSS FOR THE YEAR | - | (185 | ) | (16,025 | ) | (16,210 | ) | (5,643 | ) | (21,853 | ) | |||||||||||||||||||||||||||||||||||
| TRANSACTIONS WITH SHAREHOLDERS: | ||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of shares in consideration for investments | 4H, 4O | - | 314 | - | 314 | 314 | ||||||||||||||||||||||||||||||||||||||||
| Subsidiaries’ share-based compensation to employees and service providers | 4D, 4F | - | - | - | 244 | 244 | ||||||||||||||||||||||||||||||||||||||||
| Share based compensation to employees and service providers | 14a (8), 14c, 14e | - | 185 | 590 | - | 775 | 775 | |||||||||||||||||||||||||||||||||||||||
| Dividends declared by subsidiaries | 4F | - | - | - | (153 | ) | (153 | ) | ||||||||||||||||||||||||||||||||||||||
| Deemed issuance of shares by a subsidiary | 4K | - | 143 | - | 143 | 322 | 465 | |||||||||||||||||||||||||||||||||||||||
| Deemed stock exchange listing expenses | 4K | - | 290 | - | 290 | 290 | ||||||||||||||||||||||||||||||||||||||||
| Issuance of warrants and shares by Gix Internet | 4F | - | (226 | ) | - | (226 | ) | 226 | - | |||||||||||||||||||||||||||||||||||||
| Issuance of shares by Jeffs’ Brands | 4E | - | (129 | ) | - | (129 | ) | 418 | 289 | |||||||||||||||||||||||||||||||||||||
| Transaction with non-controlling interest by Gix Internet | 4F | - | (522 | ) | - | (522 | ) | (2,103 | ) | (2,625 | ) | |||||||||||||||||||||||||||||||||||
| Expiration of options | 14b, 14c | - | 1,062 | (1,063 | ) | - | 1 | - | - | |||||||||||||||||||||||||||||||||||||
| TOTAL TRANSACTIONS WITH SHAREHOLDERS | - | 1,561 | (473 | ) | 290 | (734 | ) | 1 | 645 | (1,046 | ) | (401 | ) | |||||||||||||||||||||||||||||||||
| BALANCE AS OF DECEMBER 31, 2023 | 112,883 | 2,787 | 1,239 | 8,955 | (875 | ) | 197 | (101,610 | ) | 23,576 | 8,859 | 32,435 | ||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| Equity attributable to owners of Xylo Technologies Ltd | ||||||||||||||||||||||||||||||||||||||||||||||
| Note | Ordinary shares |
Share premium |
Capital reserves from options granted |
Other reserves |
Capital reserves from transactions with non- controlling interests |
Currency translation differences |
Warrants | Accumulated deficit |
Total | Non- controlling interests |
Total equity |
|||||||||||||||||||||||||||||||||||
| USD in thousands | ||||||||||||||||||||||||||||||||||||||||||||||
| BALANCE AS OF JANUARY 1, 2022 | - | 110,562 | 2,579 | 634 | 10,408 | (1,002 | ) | 197 | (74,188 | ) | 49,190 | 2,243 | 51,433 | |||||||||||||||||||||||||||||||||
| Net loss for the year | - | - | - | - | - | - | - | (9,815 | ) | (9,815 | ) | (393 | ) | (10,208 | ) | |||||||||||||||||||||||||||||||
| Other comprehensive income | - | - | - | - | - | 312 | - | - | 312 | 148 | 460 | |||||||||||||||||||||||||||||||||||
| TOTAL COMPREHENSIVE INCOME (LOSS) FOR THE YEAR | - | - | - | - | - | 312 | - | (9,815 | ) | (9,503 | ) | (245 | ) | (9,748 | ) | |||||||||||||||||||||||||||||||
| TRANSACTIONS WITH SHAREHOLDERS: | ||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of warrants and shares by Gix Internet | 4F | - | - | - | - | (567 | ) | - | - | - | (567 | ) | 682 | 115 | ||||||||||||||||||||||||||||||||
| Deemed contributions to Jeffs’ Brands | 4E | - | - | - | 148 | (598 | ) | - | - | - | (450 | ) | 743 | 293 | ||||||||||||||||||||||||||||||||
| Issuance of shares in consideration for investments | - | 900 | - | - | - | - | - | - | 900 | - | 900 | |||||||||||||||||||||||||||||||||||
| Issuance of shares by Eventer | 4D | - | - | - | - | (12 | ) | - | - | - | (12 | ) | 11 | (1 | ) | |||||||||||||||||||||||||||||||
| Consolidation of Gix Internet | 4F | - | (144 | ) | - | - | - | - | - | - | (144 | ) | 7,849 | 7,705 | ||||||||||||||||||||||||||||||||
| Subsidiaries’ share-based compensation to employees and service providers | 4D | - | - | - | - | - | - | - | - | - | 102 | 102 | ||||||||||||||||||||||||||||||||||
| Share based compensation to employees and service providers | 14c | - | - | 685 | - | - | - | - | - | 685 | - | 685 | ||||||||||||||||||||||||||||||||||
| Amendment of long-term related party payable by Eventer | 4D | - | - | - | 167 | - | - | - | - | 167 | 253 | 420 | ||||||||||||||||||||||||||||||||||
| Issuance of shares and warrants by Jeffs’ Brands upon completion of IPO | 4E | - | - | - | - | 504 | - | - | - | 504 | 5,885 | 6,389 | ||||||||||||||||||||||||||||||||||
| Dividend | 14d | - | - | - | - | - | - | - | (1,583 | ) | (1,583 | ) | - | (1,583 | ) | |||||||||||||||||||||||||||||||
| Dividends declared by subsidiaries | 4F | - | - | - | - | - | - | - | - | - | (2,021 | ) | (2,021 | ) | ||||||||||||||||||||||||||||||||
| Reorganization transaction by Gix Internet | 4F | - | - | - | - | (46 | ) | - | - | - | (46 | ) | 46 | - | ||||||||||||||||||||||||||||||||
| Expiration of options | - | 4 | (4 | ) | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||
| TOTAL TRANSACTIONS WITH SHAREHOLDERS | - | 760 | 681 | 315 | (719 | ) | - | - | (1,583 | ) | (546 | ) | 13,550 | 13,004 | ||||||||||||||||||||||||||||||||
| BALANCE AS OF DECEMBER 31, 2022 | - | 111,322 | 3,260 | 949 | 9,689 | (690 | ) | 197 | (85,586 | ) | 39,141 | 15,548 | 54,689 | |||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| Equity attributable to owners of Xylo Technologies Ltd | ||||||||||||||||||||||||||||||||||||||||||||
| Ordinary shares (*) |
Share premium |
Capital reserves from options granted |
Other reserves |
Capital reserves from transactions with non- controlling interests |
Currency translation differences |
Warrants | Accumulated deficit |
Total | Non- controlling interests |
Total equity |
||||||||||||||||||||||||||||||||||
| USD in thousands | ||||||||||||||||||||||||||||||||||||||||||||
| BALANCE AS OF JANUARY 1, 2021 | 93,021 | - | 1,450 | 545 | 9,848 | (1,118 | ) | 197 | (80,982 | ) | 22,961 | 3,233 | 26,194 | |||||||||||||||||||||||||||||||
| Net income (loss) for the year | - | - | - | - | - | - | - | 6,794 | 6,794 | (2,748 | ) | 4,046 | ||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | - | - | - | (29 | ) | - | 116 | - | - | 87 | 75 | 162 | ||||||||||||||||||||||||||||||||
| TOTAL COMPREHENSIVE INCOME (LOSS) FOR THE YEAR | - | - | - | (29 | ) | - | 116 | - | 6,794 | 6,818 | (2,673 | ) | 4,208 | |||||||||||||||||||||||||||||||
| TRANSACTIONS WITH SHAREHOLDERS: | ||||||||||||||||||||||||||||||||||||||||||||
| Issuance of shares and warrants | 49,398 | (32,062 | ) | - | - | - | - | - | - | 17,336 | - | 17,336 | ||||||||||||||||||||||||||||||||
| Cancellation of par value | (142,419 | ) | 142,419 | |||||||||||||||||||||||||||||||||||||||||
| Consolidation of Jeffs’ Brands | - | 71 | - | - | - | - | 71 | 1,156 | 1,227 | |||||||||||||||||||||||||||||||||||
| Exercise of warrants issued by Odysight.ai | - | - | - | - | 264 | - | - | - | 264 | 518 | 782 | |||||||||||||||||||||||||||||||||
| Issuance of shares by Eventer | - | - | - | - | 717 | - | - | - | 717 | 1,138 | 1,855 | |||||||||||||||||||||||||||||||||
| Loss of control in Odysight.ai | - | - | - | - | - | - | - | - | - | (2,760 | ) | (2,760 | ) | |||||||||||||||||||||||||||||||
| Deemed contributions to Jeffs’ Brands | - | - | - | 108 | (421 | ) | - | - | - | (313 | ) | 529 | 216 | |||||||||||||||||||||||||||||||
| Deemed contribution to an affiliate | - | - | - | 10 | - | - | - | - | 10 | - | 10 | |||||||||||||||||||||||||||||||||
| Expiration of options | - | 74 | (74 | ) | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||
| Subsidiaries’ share-based compensation to employees and service providers | - | - | - | - | - | - | - | - | - | 1,102 | 1,102 | |||||||||||||||||||||||||||||||||
| Share based compensation to employees and service providers | - | 60 | 1,203 | - | - | - | - | - | 1,263 | - | 1,263 | |||||||||||||||||||||||||||||||||
| TOTAL TRANSACTIONS WITH SHAREHOLDERS | (93,021 | ) | 110,562 | 1,129 | 118 | 560 | - | - | - | 19,348 | 1,683 | 21,031 | ||||||||||||||||||||||||||||||||
| BALANCE AS OF DECEMBER 31, 2021 | - | 110,562 | 2,579 | 634 | 10,408 | (1,002 | ) | 197 | (74,188 | ) | 49,190 | 2,243 | 51,433 | |||||||||||||||||||||||||||||||
| (*) | Share and per share data in these financial statements have been retrospectively adjusted to reflect a number of shares that is equivalent to the number of shares of the Company post the Reverse Split (see note 14)a((4)). |
The accompanying notes are an integral part of these consolidated financial statements.
F-
(Continued) – 1
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the year ended December 31, | ||||||||||||
| 2023 | 2022 | 2021 | ||||||||||
| USD in thousands | ||||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
| Cash flows used in operations (see Appendix A) | (4,670 | ) | (4,428 | ) | (5,067 | ) | ||||||
| Interest received | 7 | |||||||||||
| Dividend received | 171 | |||||||||||
| Interest paid | (953 | ) | (1,019 | ) | (53 | ) | ||||||
| Income tax paid | (624 | ) | (380 | ) | (137 | ) | ||||||
| Net cash flow used in operating activities | (6,247 | ) | (5,656 | ) | (5,250 | ) | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||
| Purchase of property and equipment | (51 | ) | (74 | ) | (141 | ) | ||||||
| Investments and acquisitions of associates (note 4) | (5,241 | ) | (1,895 | ) | (2,727 | ) | ||||||
| Acquisitions of investments at fair value through profit or loss (note 5) | (83 | ) | (3,204 | ) | (1,976 | ) | ||||||
| Deconsolidation of Odysight.ai upon loss of control (Appendix B and note 4C) | (3,252 | ) | ||||||||||
| Consolidation of subsidiaries upon gain of control (Appendix D and note 4F, Appendix C and note 4E) | 2,737 | 240 | ||||||||||
| Purchase of intangible assets (note 10 and supplemental disclosure of cash flow information) | (1,696 | ) | (5,003 | ) | ||||||||
| Exercise of warrants issued by Odysight.ai | (234 | ) | ||||||||||
| Loans to associates (note 17b2) | (1,870 | ) | (660 | ) | (1,236 | ) | ||||||
| Loans to others (note 7b) | (250 | ) | (1,018 | ) | ||||||||
| Proceeds from sale of financial assets at fair value through profit or loss and securities of an associate (note 4C and note 5) | 6,102 | 453 | 1,883 | |||||||||
| Repayment of loans to associates (note 4L) | 785 | |||||||||||
| Changes in short term deposits | 866 | (815 | ) | |||||||||
| Net cash flow used in investing activities | (1,438 | ) | (4,476 | ) | (12,446 | ) | ||||||
| CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES: | ||||||||||||
| Proceeds from issuance of shares and warrants by subsidiaries, net of issuance costs (note 4E, note 4F) | 12,567 | 1,388 | ||||||||||
| Purchase of shares from non-controlling interests (note 4F) | (2,625 | ) | ||||||||||
| Proceeds from deemed issuance of shares by a subsidiary (note 4K) | 466 | |||||||||||
| Receipt of short-term loans (note 4E, note 4F) | 1,230 | 1,752 | 981 | |||||||||
| Repayment of short-term loans (note 4E, note 4F) | (1,311 | ) | (2,520 | ) | (1,336 | ) | ||||||
| Receipt of long-term loans (note 4E) | 1,780 | 940 | ||||||||||
| Repayment of long-term loans (note 4F) | (1,811 | ) | (1,974 | ) | ||||||||
| Repayment of related party debt (note 4D) | (163 | ) | (159 | ) | ||||||||
| Dividend paid to shareholders (note 14) | (1,583 | ) | ||||||||||
| Dividend paid to non-controlling interests (note 4F) | (728 | ) | (2,603 | ) | ||||||||
| Principal elements of lease liability | (150 | ) | (66 | ) | ||||||||
| Proceeds from issuance of shares and warrants and from exercise of warrants, net of issuances costs (note 14) | 17,336 | |||||||||||
| Net cash flow from (used in) financing activities | (3,149 | ) | 5,410 | 19,150 | ||||||||
| INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | (10,834 | ) | (4,722 | ) | 1,454 | |||||||
| BALANCE OF CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR | 20,065 | 24,025 | 22,363 | |||||||||
| GAINS FROM EXCHANGE DIFFERENCES ON CASH AND CASH EQUIVALENTS | 126 | 762 | 208 | |||||||||
| BALANCE OF CASH AND CASH EQUIVALENTS AT END OF YEAR | 9,357 | 20,065 | 24,025 | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-
(Continued) – 2
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
CONSOLIDATED STATEMENTS OF CASH FLOWS
APPENDIX A TO THE CONSOLIDATED STATEMENTS OF CASH FLOWS:
| For the year ended December 31, | ||||||||||||
| 2023 | 2022 | 2021 | ||||||||||
| USD in thousands | ||||||||||||
| NET CASH USED IN OPERATIONS: | ||||||||||||
| Income (Loss) for the year before taxes on income | (21,806 | ) | (10,097 | ) | 4,151 | |||||||
| Adjustment in respect of: | ||||||||||||
| Depreciation and amortization | 3,979 | 3,237 | 320 | |||||||||
| Net loss (income) from change in the fair value of financial assets at fair value through profit or loss | 3,830 | 2,713 | (714 | ) | ||||||||
| Changes in fair value of warrants | (2,718 | ) | (3,778 | ) | (409 | ) | ||||||
| Equity losses | 4,107 | 2,659 | 2,149 | |||||||||
| Net loss (gain) from derecognition of investments accounted for using the equity method | 2,227 | (169 | ) | |||||||||
| Finance expenses | 105 | 2,254 | 102 | |||||||||
| Amortization of excess purchase price of associates | 530 | 263 | ||||||||||
| Dividend received | (171 | ) | ||||||||||
| Interest received | (7 | ) | ||||||||||
| Interest paid | 953 | 1,019 | 53 | |||||||||
| Income tax paid | 624 | 380 | 137 | |||||||||
| Share based compensation to employees and service providers | 1,019 | 787 | 2,362 | |||||||||
| Gain from initial recognition of assets and liabilities upon consolidation of Gix Internet (note 4F) | (2,300 | ) | ||||||||||
| Gain upon loss of control in Odysight.ai (note 4C) | (11,465 | ) | ||||||||||
| Loss (Gain) from sales of investments (note 5) | 155 | (2,026 | ) | |||||||||
| Impairment of goodwill and other intangible assets | 1,812 | 89 | ||||||||||
| CHANGES IN OPERATING ASSET AND LIABILITY ITEMS: | ||||||||||||
| Decrease (Increase) in trade accounts receivable | 9,126 | (7,838 | ) | (239 | ) | |||||||
| Decrease (Increase) in other receivables | (209 | ) | (122 | ) | 231 | |||||||
| Increase in inventory | (595 | ) | (564 | ) | (551 | ) | ||||||
| Decrease (Increase) in deferred offering costs | 1,763 | (836 | ) | |||||||||
| Increase (Decrease) in trade accounts payable | (8,124 | ) | 5,837 | 1,033 | ||||||||
| Increase (Decrease) in accrued severance pay, net | (99 | ) | (22 | ) | 18 | |||||||
| Increase (Decrease) in accrued expenses and other current liabilities | 569 | (171 | ) | 272 | ||||||||
| CASH FLOWS USED IN OPERATIONS | (4,670 | ) | (4,428 | ) | (5,067 | ) | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
CONSOLIDATED STATEMENTS OF CASH FLOWS
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
| For the year ended December 31, | ||||||||||||
| 2023 | 2022 | 2021 | ||||||||||
| USD in thousands | ||||||||||||
| Right of use assets obtained in exchange for lease liabilities | 46 | 152 | ||||||||||
| Non-cash investment in Metagramm Software Ltd. (note 4O) | 250 | |||||||||||
| Non-cash investment in Polyrizon Ltd. (note 4H) | 60 | |||||||||||
| Non-cash investment in SciSparc Ltd. (note 4E) | 288 | |||||||||||
| Non-cash sale and purchase of securities (note 4J) | 1,129 | |||||||||||
| Consideration payable to the sellers of Fort Products Ltd. (note 4E) | 332 | |||||||||||
| Consideration payable to the seller of SciSparc Nutraceuticals Inc. (note 4E) | 98 | |||||||||||
| Conversions of loans into shares (note 4H, note 4L and note 4P) | 1,686 | |||||||||||
| Purchase of a software license on credit (note 4D) | 35 | 1,346 | ||||||||||
| Dividend included in other payables | 580 | |||||||||||
| Decrease in long-term related party payable in exchange for advertising services (note 4D) | 656 | |||||||||||
| Substantial modification of shareholders loans recorded in equity (note 4E) | 222 | |||||||||||
| Issuance of ordinary shares upon conversion of shareholders loans (note 4E) | 587 | |||||||||||
| Non-cash investment in Laminera Flow Optimization Ltd. (note 4M) | 400 | |||||||||||
| Non-cash investment in Clearmind Medicine Inc. | 500 | |||||||||||
| Non-cash investment in Gix Internet Ltd. and Gix Media Ltd. (note 4F) | 4,417 | |||||||||||
| Issuance of shares in exchange for media and advertising services rights (note 4E) | 1,250 | |||||||||||
| Increase in Screenz Cross Media Ltd. payable balance due to modification into a debt (note 4D) | 115 | |||||||||||
| Deferred offering costs included in other current liabilities | 423 | |||||||||||
APPENDIX B TO THE CONSOLIDATED STATEMENTS OF CASH FLOWS:
| As of March 31, 2021 |
||||
| USD in thousands |
||||
| Deconsolidation of Odysight.ai upon loss of control: | ||||
| Net working capital other than cash | 340 | |||
| Property and equipment, net | (370 | ) | ||
| Lease liability- long term | 144 | |||
| Odysight.ai investment at fair value | 11,843 | |||
| Odysight.ai warrants | 97 | |||
| Derecognition of non-controlling interests | 2,760 | |||
| Gain arising from deconsolidation upon loss of control | (11,562 | ) | ||
| Net cash deconsolidated upon loss of control | 3,252 | |||
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
CONSOLIDATED STATEMENTS OF CASH FLOWS
APPENDIX C TO THE CONSOLIDATED STATEMENTS OF CASH FLOWS:
| As of January 04, 2021 |
||||
| USD in thousands |
||||
| Consolidation of Jeffs’ Brands upon gain of control: | ||||
| Net working capital other than cash and inventory | (1,576 | ) | ||
| Intangible assets | 1,312 | |||
| Related party loans fair value adjustment | 98 | |||
| Inventory | 778 | |||
| Deferred tax liability | (188 | ) | ||
| Non-controlling interests | (1,156 | ) | ||
| Non-cash consideration | (71 | ) | ||
| Goodwill | 563 | |||
| Net cash acquired | (240 | ) | ||
APPENDIX D TO THE CONSOLIDATED STATEMENTS OF CASH FLOWS:
| February 28, | ||||
| 2022 | ||||
| Consolidation of Gix Internet upon gain of control: | ||||
| Net working capital other than cash | 646 | |||
| Intangible assets | 17,705 | |||
| Accrued severance pay, net | (125 | ) | ||
| Derecognition of investments accounted for using the equity method | (4,606 | ) | ||
| Deferred tax liability | (1,999 | ) | ||
| Rights of use assets, property and equipment, net | 888 | |||
| Lease liabilities | (570 | ) | ||
| Non-controlling interests | (7,849 | ) | ||
| Short- term borrowings | (6,296 | ) | ||
| Long- term borrowings | (6,394 | ) | ||
| Goodwill | 8,164 | |||
| Gain arising from consolidation upon gain of control | (2,300 | ) | ||
| Net cash acquired | (2,736 | ) | ||
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – GENERAL
| A. | Xylo Technologies Ltd. (the “Company” or “Xylo Technologies”) was incorporated under the laws of the State of Israel on December 9, 1999. The Company’s registered office and principal place of business is located in Israel. The address of its registered office is Hanehoshet 10, Tel-Aviv POB 6971072, Israel. |
On April 1, 2024, the Company changed its name from Medigus Ltd. to Xylo Technologies Ltd.
The Company, together with its subsidiaries and associates, operate in the technology sector, focusing primarily on internet related activities, including ad tech and e-commerce, as well as on electronics, including the development of safety systems for commercial drones and electric vehicle wireless charging solutions.
Additionally, through its corporate, the Company is engaged in the licensing of intellectual property relating to its legacy product, the Medigus Ultrasonic Surgical Endostapler (“MUSE”), to Golden Grand Medical Instruments Ltd., a China based medical services provider, and in the investment of its excess cash resources, primarily in equity securities.
“Group” – the Company together with, Jeffs’ Brands Ltd., Fuel Doctor Holdings Inc., GERD IP Inc., Eventer Technologies Ltd. and Gix Internet Ltd.
“Subsidiaries” – entities under the control of the Company.
GERD IP Inc
As of December 31, 2023, and 2022, the Company held 90% of the issued and outstanding share capital of GERD IP Inc. (“GERD IP”).
For additional information, see note 4N.
Eventer Technologies Ltd
As of December 31, 2023, and 2022, the Company held approximately 46.21% of the issued and outstanding share capital of Eventer Technologies Ltd. (“Eventer”).
For additional information, see note 4D.
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – GENERAL: (continued)
| A. | (continued) |
Gix Internet Ltd.
As of December 31, 2022, the Company held 42.25% of the issued and outstanding share capital of Gix Internet Ltd. (“Gix Internet”).
On December 11, 2023, the Company and Gix Internet signed an agreement pursuant to which the Company invested NIS 1.3 million (USD 350 thousand). Following this transaction, and as of December 31, 2023, the Company held 45.75% of the issued and outstanding share capital of Gix Internet.
For additional information, see note 4F.
Charging Robotics Ltd. and Fuel Doctor Holdings Inc.
As of December 31, 2022, the Company’s activity in the electric vehicle and wireless charging sector was conducted through its wholly owned subsidiary, Charging Robotics Ltd. (“Charging Robotics”).
On March 28, 2023 (the “Closing”), the Company signed a security exchange agreement with Fuel Doctor Holdings Inc. (“Fuel Doctor”). As part of the exchange agreement, Fuel Doctor acquired all of the issued and outstanding shares of Charging Robotics, on a fully diluted basis and as a result Charging Robotics became a wholly owned subsidiary of Fuel Doctor.
As of December 31, 2023, the Company held 67% of the issued and outstanding common stock of Fuel Doctor.
For additional information, see notes 4I and 4K.
Jeffs’ Brands Ltd.
As of December 31, 2023, the Company held 34.11% of the issued and outstanding share capital of Jeffs’ Brands Ltd. (“Jeffs’ Brands”).
For additional information, see note 4E.
On January 25, 2024, Jeffs’ Brands entered into a private placement transaction with certain institutional investors for aggregate gross proceeds of approximately USD 7,275 thousand. Following the private placement, the Company’s holdings in Jeffs’ Brands decreased to 13.37% of the issued and outstanding share capital of Jeffs’ Brands. For additional information, see note 21(1).
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – GENERAL: (continued)
| A. | (continued) |
Interests in other entities
As of December 31, 2023, the Company also held 20.04% in Parazero Technologies Ltd. (“Parazero”) (see note 4L), 38.76% in Polyrizon Ltd. (“Polyrizon”) (see note 4H), 19.7% in Laminera Flow Optimization Ltd. (“Laminera”) (see note 4M), 36.08% in A.I. Conversation Systems Ltd. (“A.I. Conversation Systems”) (see note 4P), 19.99% in Metagramm Software Ltd. (“Metagramm”) (see note 4O) and 60% in Zig Miami 54 LLC (“Zig Miami 54”) (see note 4G).
| B. |
As of the approval date of these consolidated financial statements, the Company has cash and cash equivalents in the amount of USD 4.5 million. The Company anticipates such cash and cash equivalents will provide sufficient liquidity for more than a twelve-month period from the date of these consolidated financial statements.
However, since inception, the Company’s activities have been funded mainly by its shareholders. Furthermore, in the recent years the Company has suffered recurring losses from operations, negative cash flows from operating activities, and has an accumulated deficit as of December 31, 2023.
As such, the Company’s ability to continue operating may be dependent on several factors, mainly its ability to raise sufficient additional funding, which may not necessarily be available to the Company or provide the Company with sufficient funds to meet its objectives.
As of December 31, 2023, given the decline in revenues and operating cash flows during the second half of 2023, Gix Media Ltd. (“Gix Media”), a wholly-owned subsidiary of Gix Internet’s majority-owned subsidiary, Viewbix Inc., did not meet its bank debt covenants (see note 4F). As a result, its bank debt became immediately repayable. While the bank agreed to delay its right for immediate repayment of the loans, the decline in revenues and operating cash flows may reasonably result in Gix Media’s inability to repay its debt obligations in the foreseeable future without securing additional equity or debt financing or successfully renegotiating the terms of its bank debt. The Company has no contractual obligations to support Gix Media. |
| C. | Iron Swords War |
|
On October 7, 2023, following the brutal attacks on Israel by Hamas, a terrorist organization located in the Gaza Strip that infiltrated Israel’s southern border and conducted a series of attacks on civilian and military targets, Israel’s security cabinet declared war (the “War”). Following the commencement of the War, hostilities also intensified between Israel and Hezbollah, a terrorist organization located in Lebanon. This may escalate in the future into a greater regional conflict. The War led to a reduction of business activities in Israel, evacuation of residences located in the northern and southern borders of Israel, a significant call up of military reserves and lower availability of work force.
The activities of the subsidiary Eventer, which operates in the Israeli market, were directly affected by the War due to the decrease in physical events in Israel which directly affected Eventer’s revenues in this field.
The activities of the subsidiaries Gix Internet and Jeffs’ Brands were not directly affected by the War, as their customers are predominantly from the U.S., Europe and U.K. markets that were not influenced by the War. However, there is no assurance that future developments of the War will not have any impact for reasons beyond the Group’s control such as expansion of the War to additional regions and the recruitment of senior employees.
The Group has business continuity procedures in place, and will continue to follow developments, assessing potential impact, if any, on the Group’s business, financials and operations. |
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – MATERIAL ACCOUNTING POLICY INFORMATION:
| A. | Basis of accounting |
The financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
The financial statements have been prepared on the historical cost basis, except for the revaluation of certain financial instruments that are measured at revalued amounts or fair values at the end of each reporting period, as explained in the accounting policies below. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these consolidated financial statements is determined on such a basis, except for share-based payment transactions that are within the scope of IFRS 2 Share-based Payment, leasing transactions that are within the scope of IFRS 16 Leases, and measurements that have some similarities to fair value but are not fair value, such as net realizable value in IAS 2 Inventories or value in use in IAS 36 Impairment of Assets.
The consolidated financial statements were approved for filing by the Board of Directors on April 18, 2024.
The significant accounting policies set out below have been consistently applied to in the preparation of these consolidated financial statements for all years presented, unless otherwise stated.
| B. | Basis of consolidation |
The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 31 December each year.
When the Company has less than a majority of the voting rights of an investee, it considers that it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally. The Company considers all relevant facts and circumstances in assessing whether or not the Company’s voting rights in an investee are sufficient to give it power, including:
| ● | The size of the Company’s holding of voting rights relative to the size and dispersion of holdings of the other vote holders. |
| ● | Potential voting rights held by the Company, other vote holders or other parties. |
| ● | Rights arising from other contractual arrangements. |
| ● | Any additional facts and circumstances that indicate that the Company has, or does not have, the current ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders’ meetings. |
Non-controlling interests in subsidiaries are identified separately from the Group’s equity therein. Those interests of non-controlling shareholders that are present ownership interests entitling their holders to a proportionate share of net assets upon liquidation may initially be measured at fair value or at the non-controlling interests’ proportionate share of the fair value of the acquiree’s identifiable net assets. The choice of measurement is made on an acquisition-by-acquisition basis. Other non-controlling interests are initially measured at fair value. Subsequent to acquisition, the carrying amount of non-controlling interests is the amount of those interests at initial recognition plus the non-controlling interests’ share of subsequent changes in equity.
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – MATERIAL ACCOUNTING POLICY INFORMATION: (continued)
| C. | Business combinations |
Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interest issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognized in profit or loss as incurred.
When the consideration transferred by the Group in a business combination includes a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and included as part of the consideration transferred in a business combination. Changes in fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the ‘measurement period’ (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date.
The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Other contingent consideration is remeasured to fair value at subsequent reporting dates with changes in fair value recognized in profit or loss.
When a business combination is achieved in stages, the Group’s previously held interests in the acquired entity are remeasured to its acquisition-date fair value and the resulting gain or loss, if any, is recognized in profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognized in other comprehensive income are reclassified to profit or loss, where such treatment would be appropriate if that interest were disposed of.
If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period (see above), or additional assets or liabilities are recognized, to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognized as of that date.
| D. | Goodwill |
Goodwill is initially recognized and measured as set out above.
Goodwill is not amortized but is reviewed for impairment at least annually. For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units (or groups of cash-generating units) expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. For more information, see note 10.
An impairment loss recognized for goodwill is not reversed in a subsequent period.
| E. | Investments in associates |
An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee. The Group is presumed to have significant influence when it holds 20 percent or more of the voting rights of an investee, unless it can be clearly demonstrated that this is not the case. The Group does not control its associates.
Under the equity method, an investment in an associate is recognized initially in the consolidated statements of financial position at cost and adjusted thereafter to recognize the Group’s share of the profit or loss and other comprehensive income of the associate. Dividends received or receivable from associates are recognized as a reduction in the carrying amount of the investment. When the Group’s share of losses of an associate or exceeds the Group’s interest in that associate (which includes any long-term interests that, in substance, form part of the Group’s net investment in the associate), the Group discontinues recognizing its share of further losses. Additional losses are recognized only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate.
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – MATERIAL ACCOUNTING POLICY INFORMATION: (continued)
| E. | Investments in associates (continued) |
If there is objective evidence that the Group’s net investment in an associate is impaired, the requirements of IAS 36 are applied to determine whether it is necessary to recognize any impairment loss with respect to the Group’s investment. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with IAS 36 as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs of disposal) with its carrying amount. Any impairment loss recognized is not allocated to any asset, including goodwill that forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognized in accordance with IAS 36 to the extent that the recoverable amount of the investment subsequently increases.
| F. | Foreign currencies |
The functional currency and the presentation currency
The reporting and functional currency of the Company and each of its subsidiaries, GERD IP, Fuel Doctor and Jeffs’ Brands is USD while Eventer and Gix Internet is NIS.
The consolidated financial statements are presented in USD and rounded to the nearest thousand.
The consolidation of Gix’s Internet and Eventer’s financial statements is accounted for as a foreign operation using IAS 21, the Effects of Changes in Foreign Exchange Rates.
Transactions and balances
In preparing the financial statements of the Group entities, transactions in currencies other than the entity’s functional currency (“Foreign Currencies”) are recognized at the rates of exchange prevailing on the dates of the transactions. At each reporting date, monetary assets and liabilities that are denominated in Foreign Currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in Foreign Currencies are translated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.
Exchange differences are recognized in profit or loss in the period in which they arise.
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XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – MATERIAL ACCOUNTING POLICY INFORMATION: (continued)
| G. | Property and equipment |
Depreciation is calculated using the straight-line method over the estimated useful life of the asset as follows:
| Machinery and equipment | 6 – 10 years (primarily 10) | |
| Leasehold improvements and furniture | 7 – 14 years | |
| Computers and programs | 3 years |
Leasehold improvements are depreciated using the straight-line method over the shorter of the term of the lease or the estimated useful lives of the assets.
| H. | Financial instruments |
Financial assets and financial liabilities are recognized in the Group’s consolidated statements of financial position when the Group becomes a party to the contractual provisions of the instrument.
Financial assets and financial liabilities are initially measured at fair value, except for trade receivables that do not have a significant financing component which are measured at transaction price. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognized immediately in profit or loss.
Financial assets
All recognized financial assets are measured subsequently in their entirety at either amortized cost or fair value, depending on the classification of the financial assets.
Classification
The Group classifies its financial assets in the following measurement categories:
| ● | those to be measured subsequently at fair value through profit or loss, and |
| ● | those to be measured at amortized cost. |
The classification depends on the entity’s business model for managing the financial assets and the contractual terms of the cash flows.
For assets measured at fair value, gains and losses will be recorded in profit or loss.
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XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – MATERIAL ACCOUNTING POLICY INFORMATION: (continued)
| H. | Financial instruments (continued) |
Recognition
Regular way purchases and sales of financial assets are recognized on trade date, being the date on which the Group commits to purchase or sell the asset. Financial assets are derecognized when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership.
Measurement
At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss (“FVTPL”), transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at FVTPL are expensed in profit or loss.
Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows are solely payment of principal and interest.
Debt instruments
Subsequent measurement of investments in debt instruments depends on the Group’s business model for managing the asset and the cash flow characteristics of the asset. There are two measurement categories into which the Group classifies its investments in debt instruments:
| ● | Amortized cost: Financial assets are measured at amortized cost if both of the following conditions are met: |
| - | the financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and |
| - | the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. |
Interest income from these financial assets is included in finance income using the effective interest rate method. Any gain or loss arising on derecognition is recognized directly in profit or loss and presented in other gains/(losses) together with foreign exchange gains and losses.
| ● | Fair value through profit or loss: A gain or loss on a debt investment that is subsequently measured at FVTPL is recognized in profit or loss and presented net within other gains/(losses) in the period in which it arises. |
Equity instruments
The Group subsequently measures investments in equity instruments at fair value through profit or loss except when the Group has control or significant influence. Dividends from such investments continue to be recognized in profit or loss as other income when the Group’s right to receive payments is established.
Changes in the fair value of financial assets at FVTPL are recognized in “net change in fair value of financial assets at fair value through profit or loss” in the Consolidated statements of loss and other comprehensive loss, as applicable.
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XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – MATERIAL ACCOUNTING POLICY INFORMATION: (continued)
| H. | Financial instruments (continued) |
Impairment of financial assets
The Group recognizes a loss allowance for expected credit losses on financial assets at amortized cost.
At each reporting date, the Group assesses whether the credit risk on a financial instrument has increased significantly since initial recognition. If the financial instrument is determined to have a low credit risk at the reporting date, the Company assumes that the credit risk on a financial instrument has not increased significantly since initial recognition.
The Group measures the loss allowance for expected credit losses on trade receivables and on financial instruments for which the credit risk has increased significantly since initial recognition based on lifetime expected credit losses based on information available on their credit condition, current aging, historical experience, future economic and market conditions. The Group has determined that the estimates of current and expected credit losses are immaterial.
Financial liabilities and equity
Classification as debt or equity
Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group are recognized at the proceeds received, net of direct issue costs.
Repurchase of the Company’s own equity instruments is recognized and deducted directly in equity. No gain or loss is recognized in profit or loss on the purchase, sale, issue or cancellation of the Company’s own equity instruments.
Compound instruments
The component parts of convertible loan notes issued by the Group are classified separately as financial liabilities and equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument. A conversion option that will be settled by the exchange of a fixed amount of cash or another financial asset for a fixed number of the Company’s own equity instruments is an equity instrument.
At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for a similar non-convertible instrument. This amount is recorded as a liability on an amortized cost basis using the effective interest method until extinguished upon conversion or at the instrument’s maturity date.
The conversion option classified as equity is determined by deducting the amount of the liability component from the fair value of the compound instrument as a whole. This is recognized and included in equity, net of income tax effects, and is not subsequently remeasured. In addition, the conversion option classified as equity will remain in equity until the conversion option is exercised, in which case the balance recognized in equity will be transferred to share premium. Where the conversion option remains unexercised at the maturity date of the convertible loan note, the balance recognized in equity will be transferred to retained earnings. No gain or loss is recognized in profit or loss upon conversion or expiration of the conversion option.
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XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – MATERIAL ACCOUNTING POLICY INFORMATION: (continued)
| H. | Financial instruments (continued) |
Compound instruments (continued)
Transaction costs that relate to the issue of the convertible loan notes are allocated to the liability and equity components in proportion to the allocation of the gross proceeds. Transaction costs relating to the equity component are recognized directly in equity. Transaction costs relating to the liability component are included in the carrying amount of the liability component and are amortized over the lives of the convertible loan notes using the effective interest method.
Financial liabilities
Financial liabilities are initially recognized at their fair value minus, in the case of a financial liability not at fair value through profit or loss, transaction costs that are directly attributable to the issue of the financial liability.
Financial liabilities are subsequently measured at amortized cost using the effective interest method, except for derivative financial instruments, which are subsequently measured at fair value through profit or loss (FVTPL).
The Group has early adopted the narrow-scope amendment to IAS 1. Accordingly, financial liabilities are classified as non-current if the Group has a substantive right to defer settlement for at least 12 months at the end of the reporting period, otherwise, they are classified as current liabilities.
The Group’s financial liabilities at amortized cost are included in accounts payable, accrued expenses, other current liabilities, payable in respect of the intangible asset and lease liabilities.
The derivative financial instruments represent warrants that confer the right to net share settlement.
The Group derecognizes a financial liability (or a part of a financial liability) when, and only when, it is extinguished (when the obligation specified in the contract is discharged, cancelled or expired).
Derecognition of financial liabilities
The Group derecognizes financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or have expired. The difference between the carrying amount of the financial liability derecognized and the consideration paid and payable is recognized in profit or loss.
When the Group exchanges with the existing lender one debt instrument into another one with substantially different terms, such exchange is accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability. Similarly, the Group accounts for substantial modification of terms of an existing liability or part of it as an extinguishment of the original financial liability and the recognition of a new liability. It is assumed that the terms are substantially different if the discounted present value of the cash flows under the new terms, including any fees paid net of any fees received and discounted using the original effective interest rate is at least 10 per cent different from the discounted present value of the remaining cash flows of the original financial liability. If the modification is not substantial, the difference between: (1) the carrying amount of the liability before the modification; and (2) the present value of the cash flows after modification is recognized in profit or loss as the modification gain or loss within other gains and losses.
| I. | Inventories |
Inventories are stated at the lower of cost and net realizable value. Cost comprises direct materials and, where applicable, direct labor costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Cost is calculated using the weighted average cost method. Net realizable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution.
The Group periodically evaluates the condition and age of inventories and makes provisions for slow moving inventories accordingly.
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XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – MATERIAL ACCOUNTING POLICY INFORMATION: (continued)
| J. | Cash and cash equivalents |
In the statement of financial position, cash and bank balances comprise cash (i.e., cash on hand and demand deposits) and cash equivalents. Cash equivalents are short-term (generally with original maturity of three months or less), highly liquid investments that are readily convertible to a known amount of cash and which are subject to an insignificant risk of changes in value. Cash equivalents are held for the purpose of meeting short-term cash commitments rather for investment or other purposes.
Bank balances for which use by the Group is subject to third party contractual restrictions are included as part of cash unless the restrictions result in a bank balance no longer meeting the definition of cash. If the contractual restrictions to use the cash extend beyond 12 months after the end of the reporting period, the related amounts are classified as non-current in the statement of financial position.
For the purposes of the statement of cash flows, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts which are repayable on demand and form an integral part of the Group’s cash management. Such overdrafts are presented as short-term borrowings in the statement of financial position.
| K. | Taxation |
The income tax expense represents the sum of the tax currently payable and deferred tax.
Current Tax
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in profit or loss because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.
A provision is recognized for those matters for which the tax determination is uncertain, but it is considered probable that there will be a future outflow of funds to a tax authority. The provisions are measured at the best estimate of the amount expected to become payable. The assessment is based on the judgement of tax professionals within the Company supported by previous experience in respect of such activities and in certain cases based on specialist independent tax advice.
Deferred Tax
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit and is accounted for using the liability method. Deferred tax liabilities are generally recognized for all taxable temporary differences and are recognized to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilized. Such assets and liabilities are not recognized if the temporary difference arises from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. In addition, a deferred tax liability is not recognized if the temporary difference arises from the initial recognition of goodwill.
Deferred tax liabilities are recognized for taxable temporary differences arising on investments in subsidiaries and associates, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments are only recognized to the extent that it is probable that there will be sufficient taxable profits against which to utilize the benefits of the temporary differences and they are expected to reverse in the foreseeable future.
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XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – MATERIAL ACCOUNTING POLICY INFORMATION: (continued)
| L. | Short-term and other long-term employee benefits |
Pension and severance pay obligations
Israeli labor law generally requires payment of severance pay upon dismissal of an employee or upon termination of employment in certain other circumstances. Pursuant to Section 14 of the Severance Compensation Act, 1963 (“Section 14”), all of the Company’s employees in Israel are entitled a monthly contribution, at a rate of 8.33% of their monthly salary, made in their name with insurance companies. Contributions under Section 14 relieve the Company from any future severance payment obligation with respect to those employees. The aforementioned contributions are not recorded as an asset on the Company’s consolidated statements of financial position, and there is no liability recorded as the Company does not have a future obligation to make any additional payments.
The asset and the liability for severance pay presented in the consolidated statements of financial position reflects employees that began employment prior to automatic application of Section 14.
The severance pay liability of the Company to its employees that began employment prior to automatic application of Section 14 based upon the number of years of service and the latest monthly salary and is partly covered by regular deposits with recognized pension funds and deposits with severance pay funds. Under labor laws, these deposits are in the employees’ names and, subject to certain limitations, are the property of the employees. The Company records the obligation as if it were payable at each statement of financial position date on an undiscounted basis.
Vacation and recreation pay
Under the Israeli law, each employee is legally entitled to vacation and recreation benefits. The entitlement is based on term of employment. The Group records such obligations as incurred.
Bonus plans
The Group record bonus obligation when a contractual or constructive obligation exists. Such bonus obligation is record in the amount expected to be paid, to the extent that the Group can reliably estimate the amount expected to be paid.
| M. | Provisions |
Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle that obligation and a reliable estimate can be made of the amount of the obligation.
The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the reporting date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (when the effect of the time value of money is material).
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XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – MATERIAL ACCOUNTING POLICY INFORMATION: (continued)
| N. | Share-based payments |
Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date. The fair value excludes the effect of non-market-based vesting conditions. Details regarding the determination of the fair value of equity-settled share-based transactions are set out in note 14.
The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of the number of equity instruments that will eventually vest. At each reporting date, the Group revises its estimate of the number of equity instruments expected to vest as a result of the effect of non-market-based vesting conditions. The impact of the revision of the original estimates, if any, is recognized in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to reserves.
Equity-settled share-based payment transactions with parties other than employees are measured at the fair value of the goods or services received, except where that fair value cannot be estimated reliably, in which case they are measured at the fair value of the equity instruments granted, measured at the date the entity obtains the goods or the counterparty renders the service.
| O. | Revenue recognition |
The Group recognizes revenue from the following major sources:
| ● | Product revenue |
| ● | Service revenue |
Revenue is measured based on the consideration to which the Group expects to be entitled in a contract with a customer and excludes amounts collected on behalf of third parties. The Group recognizes revenue when it transfers control of a product or service to a customer.
Product Revenue through Jeffs’ Brands
Revenues from product sales of Jeffs’ Brands, directly to Jeffs’ Brands customers through Jeffs’ Brands own online Amazon stores.
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – MATERIAL ACCOUNTING POLICY INFORMATION: (continued)
| O. | Revenue recognition (continued) |
Product Revenue through Jeffs’ Brands (continued)
For sales of goods to retail customers, revenue is recognized when control of the goods has transferred to the customer, being at the point the goods are delivered to the customer. Payment of the transaction price is due immediately at the point the customer purchases the goods.
Under Jeffs’ Brands standard contract terms, customers have a right of return within 45 days. Jeffs’ Brands uses its accumulated historical experience to estimate the number of returns on a portfolio level using the expected value method. It is considered highly probable that a significant reversal in the cumulative revenue recognized will not occur given the consistent level of returns over previous years.
Service Revenue through Gix Internet
Gix Internet generates revenues from obtaining internet user traffic and routing such traffic to its customers. Gix Internet is entitled to receive consideration for its service upon each individual internet user traffic routed to and monetized by its customers.
Gix Internet’s revenues are measured according to the amount of consideration that Gix Internet expects to be entitled to in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties, such as VAT taxes. Revenues are presented net of VAT.
As Gix Internet operates as the primary obligor in its arrangements and has sole discretion in determining to which of its customers internet user traffic is to be routed, revenues are presented on a gross basis.
Service Revenues through Eventer
Eventer generates revenues through collecting commissions from customers for ticket sales on Eventer’s event production platform. These services constitute a performance obligation that is fulfilled at one point in time and therefore the Group recognizes revenues at the time of the event.
Revenues are presented on a net basis, since Eventer’s activity is to arrange for the consideration of tickets to be provided to a third party.
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – MATERIAL ACCOUNTING POLICY INFORMATION: (continued)
| P. | Leases |
The Group assesses whether a contract is or contains a lease, at inception of the contract. The Group recognizes a right-of-use asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short-term leases (defined as leases with a lease term of 12 months or less) and leases of low value assets (such as tablets and personal computers, small items of office furniture and telephones). For these leases, the Group recognizes the lease payments as an operating expense on a straight-line basis over the term of the lease unless another systematic basis is more representative of the time pattern in which economic benefits from the leased assets are consumed.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the Group uses its incremental borrowing rate.
The incremental borrowing rate depends on the term, currency and start date of the lease and is determined based on a series of inputs including: the risk-free rate based on government bond rates; a country-specific risk adjustment; a credit risk adjustment based on bond yields; and an entity-specific adjustment when the risk profile of the entity that enters into the lease is different to that of the Group and the lease does not benefit from a guarantee from the Group.
Lease payments included in the measurement of the lease liability comprise:
| ● | Fixed lease payments (including in-substance fixed payments), less any lease incentives receivable |
| ● | Variable lease payments that depend on an index or rate, initially measured using the index or rate at the commencement date |
| ● | The amount expected to be payable by the lessee under residual value guarantees |
| ● | The exercise price of purchase options, if the lessee is reasonably certain to exercise the options |
| ● | Payments of penalties for terminating the lease, if the lease term reflects the exercise of an option to terminate the lease |
The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest method) and by reducing the carrying amount to reflect the lease payments made.
The right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments made at or before the commencement day, less any lease incentives received and any initial direct costs. They are subsequently measured at cost less accumulated depreciation and impairment losses.
Right-of-use assets are depreciated over the shorter period of lease term and useful life of the right-of-use asset. The depreciation starts at the commencement date of the lease.
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – MATERIAL ACCOUNTING POLICY INFORMATION: (continued)
| Q. | Intangible assets |
Intangible assets acquired separately
Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated amortization and accumulated impairment losses. Amortization is recognized on a straight-line basis over their estimated useful lives. The estimated useful life and amortization method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. Intangible assets with indefinite useful lives that are acquired separately are carried at cost less accumulated impairment losses.
Internally generated intangible assets – research and development expenditure
Expenditure on research activities is recognized as an expense in the period in which it is incurred.
An internally generated intangible asset arising from development (or from the development phase of an internal project) is recognized if, and only if, all of the following conditions have been demonstrated:
| ● | The technical feasibility of completing the intangible asset so that it will be available for use or sale |
| ● | The intention to complete the intangible asset and use or sell it |
| ● | The ability to use or sell the intangible asset |
| ● | How the intangible asset will generate probable future economic benefits |
| ● | The availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset |
| ● | The ability to measure reliably the expenditure attributable to the intangible asset during its development |
The amount initially recognized for internally generated intangible assets is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. Where no internally generated intangible asset can be recognized, development expenditure is recognized in profit or loss in the period in which it is incurred.
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XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – MATERIAL ACCOUNTING POLICY INFORMATION: (continued)
| Q. | Intangible assets (continued) |
Internally generated intangible assets – research and development expenditure (continued)
Subsequent to initial recognition, internally generated intangible assets are reported at cost less accumulated amortization and accumulated impairment losses, on the same basis as intangible assets that are acquired separately.
Intangible assets acquired in a business combination
Intangible assets acquired in a business combination and recognized separately from goodwill are recognized initially at their fair value at the acquisition date (which is regarded as their cost).
Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortization and accumulated impairment losses, on the same basis as intangible assets that are acquired separately.
Derecognition of intangible assets
An intangible asset is derecognized on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, and are recognized in the consolidated statements of income/loss and other comprehensive income/loss as profit/loss when the asset is derecognized.
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XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – MATERIAL ACCOUNTING POLICY INFORMATION: (continued)
| R. | Impairment of property and equipment and intangible assets excluding goodwill |
At each reporting date, the Group reviews the carrying amounts of its property and equipment and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.
Intangible assets with an indefinite useful life are tested for impairment at least annually and whenever there is an indication at the end of a reporting period that the asset may be impaired.
Recoverable amount is the higher of fair value less costs of disposal and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognized immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease and to the extent that the impairment loss is greater than the related revaluation surplus, the excess impairment loss is recognized in profit or loss.
Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognized immediately in profit or loss to the extent that it eliminates the impairment loss which has been recognized for the asset in prior years. Any increase in excess of this amount is treated as a revaluation increase.
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XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – MATERIAL ACCOUNTING POLICY INFORMATION: (continued)
| S. | New and amended IFRS Accounting Standards that are effective for the current year |
In the current year, the Group has applied a number of amendments to IFRS Accounting Standards issued by the International Accounting Standards Board (IASB) that are mandatorily effective for an accounting period that begins on or after 1 January 2023. Their adoption has not had any material impact on the disclosures or on the amounts reported in these consolidated financial statements.
Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2 Making Materiality Judgements – Disclosure of Accounting Policies
The Group has adopted the amendments to IAS 1 for the first time in the current year. The amendments change the requirements in IAS 1 with regard to disclosure of accounting policies. The amendments replace all instances of the term ’significant accounting policies’ with ‘material accounting policy information’. Accounting policy information is material if, when considered together with other information included in an entity’s financial statements, it can reasonably be expected to influence decisions that the primary users of general-purpose financial statements make on the basis of those financial statements.
The supporting paragraphs in IAS 1 are also amended to clarify that accounting policy information that relates to immaterial transactions, other events or conditions is immaterial and need not be disclosed. Accounting policy information may be material because of the nature of the related transactions, other events or conditions, even if the amounts are immaterial. However, not all accounting policy information relating to material transactions, other events or conditions is itself material.
Amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors – Definition of Accounting Estimates
The Group has adopted the amendments to IAS 8 for the first time in the current year. The amendments replace the definition of a change in accounting estimates with a definition of accounting estimates. Under the new definition, accounting estimates are “monetary amounts in financial statements that are subject to measurement uncertainty”. The definition of a change in accounting estimates was deleted.
Amendments to IAS 12 Income Taxes – Deferred Tax related to Assets and Liabilities arising from a Single Transaction
The Group has adopted the amendments to IAS 12 for the first time in the current year. The amendments introduce a further exception from the initial recognition exemption. Under the amendments, an entity does not apply the initial recognition exemption for transactions that give rise to equal taxable and deductible temporary differences.
Depending on the applicable tax law, equal taxable and deductible temporary differences may arise on initial recognition of an asset and liability in a transaction that is not a business combination and affects neither accounting profit nor taxable profit.
Following the amendments to IAS 12, an entity is required to recognize the related deferred tax asset and liability, with the recognition of any deferred tax asset being subject to the recoverability criteria in IAS 12.
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XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – MATERIAL ACCOUNTING POLICY INFORMATION: (continued)
| T. | New and revised IFRS Accounting Standards in issue but not yet effective |
At the date of authorization of these consolidated financial statements, the Group has not applied the following new and revised IFRS Accounting Standards that have been issued but are not yet effective.
The Group does not expect that the adoption of the Standards will have a material impact on the consolidated financial statements of the Group in future periods, except if indicated below.
Amendments to IAS 1 Presentation of Financial Statements – Classification of Liabilities as Current or Non-current
The amendments to IAS 1 published in January 2020 affect only the presentation of liabilities as current or non-current in the statement of financial position and not the amount or timing of recognition of any asset, liability, income or expenses, or the information disclosed about those items.
The amendments clarify that the classification of liabilities as current or non-current is based on rights that are in existence at the end of the reporting period, specify that classification is unaffected by expectations about whether an entity will exercise its right to defer settlement of a liability, explain that rights are in existence if covenants are complied with at the end of the reporting period, and introduce a definition of ’settlement’ to make clear that settlement refers to the transfer to the counterparty of cash, equity instruments, other assets or services.
The amendments are applied retrospectively for annual periods beginning on or after 1 January 2024, with early application permitted. The IASB has aligned the effective date with the 2022 amendments to IAS 1. If an entity applies the 2020 amendments for an earlier period, it is also required to apply the 2022 amendments early.
The Group anticipates that the application of these amendments may have an impact on the Group’s consolidated financial statements in future periods.
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – MATERIAL ACCOUNTING POLICY INFORMATION: (continued)
| T. | New and revised IFRS Accounting Standards in issue but not yet effective (continued) |
Amendments to IAS 1 Presentation of Financial Statements – Non-current Liabilities with Covenants
The amendments specify that only covenants that an entity is required to comply with on or before the end of the reporting period affect the entity’s right to defer settlement of a liability for at least twelve months after the reporting date (and therefore must be considered in assessing the classification of the liability as current or non-current). Such covenants affect whether the right exists at the end of the reporting period, even if compliance with the covenant is assessed only after the reporting date (e.g. a covenant based on the entity’s financial position at the reporting date that is assessed for compliance only after the reporting date).
The IASB also specifies that the right to defer settlement of a liability for at least twelve months after the reporting date is not affected if an entity only has to comply with a covenant after the reporting period. However, if the entity’s right to defer settlement of a liability is subject to the entity complying with covenants within twelve months after the reporting period, an entity discloses information that enables users of financial statements to understand the risk of the liabilities becoming repayable within twelve months after the reporting period. This would include information about the covenants (including the nature of the covenants and when the entity is required to comply with them), the carrying amount of related liabilities and facts and circumstances, if any, that indicate that the entity may have difficulties complying with the covenants.
The amendments are applied retrospectively for annual reporting periods beginning on or after 1 January 2024. Earlier application of the amendments is permitted. If an entity applies the amendments for an earlier period, it is also required to apply the 2020 amendments early.
The Group anticipates that the application of these amendments may have an impact on the Group’s consolidated financial statements in future periods.
NOTE 3 – KEY SOURCES OF ESTIMATION UNCERTAINTY:
In applying the Group’s accounting policies, which are described in note 2, the management is required to make estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimate are recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
The key assumptions concerning the future, and other key sources of estimation uncertainty at the reporting period that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below.
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 – KEY SOURCES OF ESTIMATION UNCERTAINTY: (continued)
Fair value measurements and valuation process of financial assets and liabilities measured at fair value through profit or loss (FVTPL)
Some of the Group’s financial assets and financial liabilities are measured at fair value for financial reporting purposes.
In estimating the fair value of such assets or liabilities, the Group uses market-observable data. Where Level 1 or 2 inputs are not available, the Group determines the fair value of the financial instrument using acceptable valuation techniques and, as applicable, engages third party qualified valuation specialists to perform the valuation.
Further information on the relevant unobservable inputs is provided in note 5.
Impairment of Intangible Assets
During 2023, the Company recognized an impairment loss of USD 508 thousand for the online advertising & internet traffic routing reporting unit’s goodwill, reducing the book value of goodwill to USD 7.7 million as of December 31, 2023. The Company’s quantitative goodwill impairment test involves the comparison of the fair value of each reporting unit to its carrying value. In estimating the fair value of the online advertising & internet traffic routing reporting unit (Gix Internet) the Company used the income approach method, which requires management to make significant estimates and assumptions related to future cash flows and discount rates.
Additionally, the Company’s subsidiary Jeffs’ Brands recorded an impairment loss of USD 955 thousand, within equity losses, on its equity investment in SciSparc Nutraceuticals Inc. The impairment loss was determined based on the fair value valuation of the Wellution trade name by SciSparc Nutraceuticals Inc. In estimating the fair value of the trade name, Jeffs’ Brands used the relief from royalty method, which similarly requires management to make significant estimates and assumptions related to future cash flows and discount rates.
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 – INTEREST IN OTHER ENTITIES:
| A. | Investments in subsidiaries: |
| 1. | Additional information about Subsidiaries held by the Company: |
General information
| Main place of the business |
Ownership rights held by the Company |
Ownership rights held by non- controlling interests |
||||||||
| December 31, 2023 | ||||||||||
| Jeffs’ Brands | Israel | 34.11 | % | 65.89 | % | |||||
| Eventer | Israel | 46.21 | % | 53.79 | % | |||||
| Fuel Doctor | USA | 67 | % | 33 | % | |||||
| GERD IP | USA | 90 | % | 10 | % | |||||
| Gix Internet | Israel | 45.75 | % | 54.25 | % | |||||
| Main place of the business |
Ownership rights held by the Company |
Ownership rights held by non- controlling interests |
||||||||
| December 31, 2022 | ||||||||||
| Jeffs’ Brands | Israel | 35.94 | % | 64.06 | % | |||||
| Eventer | Israel | 46.21 | % | 53.79 | % | |||||
| Charging Robotics | Israel | 100 | % | 0 | % | |||||
| GERD IP | USA | 90 | % | 10 | % | |||||
| Gix Internet | Israel | 42.25 | % | 57.75 | % | |||||
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 – INTEREST IN OTHER ENTITIES: (continued)
| A. | Investments in subsidiaries: (continued) |
| 2. | Information related to non-controlling interests: |
Balance of non-controlling interests:
| December 31, 2023 |
December 31, 2022 |
|||||||
| USD in thousands | ||||||||
| Eventer | 371 | 721 | ||||||
| Jeffs’ Brands | 5,628 | 7,199 | ||||||
| Charging Robotics | 91 | |||||||
| Gix Internet | 2,642 | 7,480 | ||||||
| GERD IP | 57 | 57 | ||||||
| Fuel Doctor | 161 | |||||||
| 8,859 | 15,548 | |||||||
Net income (loss) attributed to non-controlling interests:
|
Year ended 2023 |
Year ended December 31, 2022 |
Year ended December 31, 2021 |
||||||||||
| USD in thousands | ||||||||||||
| Odysight.ai | - | ) | ||||||||||
| Eventer | (383 | ) | (691 | ) | (1,112 | ) | ||||||
| Jeffs’ Brands | (1,989 | ) | (396 | ) | (795 | ) | ||||||
| Gix Internet | (3,085 | ) | - | |||||||||
| GERD IP | 7 | 51 | ||||||||||
| Fuel Doctor | (250 | ) | - | - | ||||||||
| (5,707 | ) | (393 | ) | (2,748 | ) | |||||||
| (*) | On March 22, 2021, the Company’s holdings in Odysight.ai were diluted, therefore it was deconsolidated as of this date. For additional information see note 4C. |
| (**) | For the period from February 28, 2022, until December 31, 2022. For additional information see note 4F. |
| 3. | Summarized financial information of material subsidiaries: |
The summarized financial information below is prior to eliminating intragroup balances and transactions.
Jeffs’ Brands:
| December 31, 2023 |
December 31, 2022 |
|||||||
| USD in thousands | ||||||||
| Current assets | 4,232 | 11,033 | ||||||
| Non-current assets | 8,890 | 4,743 | ||||||
| Current liabilities | 4,342 | 5,133 | ||||||
| Non-current liabilities | 309 | 98 | ||||||
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 – INTEREST IN OTHER ENTITIES: (continued)
| A. | Investments in subsidiaries: (continued) |
| 3. | Summarized financial information of material subsidiaries: (continued) |
|
Year ended 2023 |
Year ended December 31, 2022 |
Year ended December 31, 2021 |
||||||||||
| USD in thousands | ||||||||||||
| Revenues | 10,008 | 5,859 | 6,509 | |||||||||
| Net loss for the year | (2,992 | ) | (1,134 | ) | (1,540 | ) | ||||||
| Cash flows used in operating activities | (2,598 | ) | (4,823 | ) | (863 | ) | ||||||
| Cash flows used in investing activities | (4,814 | ) | (41 | ) | (4,730 | ) | ||||||
| Cash flows from (used in) financing activities | (156 | ) | 12,611 | 5,695 | ||||||||
| Net increase (decrease) in cash and cash equivalents | (8,137 | ) | 7,747 | 102 | ||||||||
Gix Internet:
| December 31, 2023 |
December 31, 2022 |
|||||||
| USD in thousands (*) | ||||||||
| Current assets | 14,400 | 26,481 | ||||||
| Non-current assets | 20,778 | 16,549 | ||||||
| Current liabilities | 23,555 | 29,529 | ||||||
| Non-current liabilities | 2,168 | 4,127 | ||||||
| (*) | Translated according to the exchange rates at the date of each statement of financial position. |
| Year ended December 31, 2023 | February 28, 2022 – December 31, 2022 (**) |
|||||||
| USD in thousands (***) | ||||||||
| Revenues | 79,613 | 83,532 | ||||||
| Net income (loss) for the period | (4,971 | ) | 414 | |||||
| Total comprehensive income (loss) for the period | (4,791 | ) | 913 | |||||
| Cash flows from operating activities | 678 | 4,232 | ||||||
| Cash flows from investing activities | 19 | 13 | ||||||
| Cash flows used in financing activities | (3,113 | ) | (3,309 | ) | ||||
| Net increase (decrease) in cash and cash equivalents | (2,416 | ) | 809 | |||||
| (**) | Gix Internet was consolidated as of February 28, 2022. For additional information see note 4F. |
| (***) | Translated according to the average exchange rates for each period. |
| 4. | Additional information: |
The Company consolidated Gix Internet as of February 28, 2022, as the Company increased its holdings interests to 38.03% on February 28, 2022, making the Company the largest shareholder in Gix Internet on a fully diluted basis. Additionally, the Company had appointed 3 out of 5 of the members of the Board of Directors of Gix Internet. As such, the Company achieved control over Gix Internet as of February 28, 2022.
On August 30, 2022, Jeffs’ Brands completed an initial public offering (“IPO”) and the Company’s holdings in Jeffs’ Brands were diluted to below 50% of the voting rights. However, as of December 31, 2023, the Company continued to consolidate Jeffs’ Brands as the Company was the largest shareholder in Jeffs’ Brands as of December 31, 2023, and held 34.11% of the voting rights. On January 25, 2024, Jeffs’ Brands entered into a private placement transaction which resulted in a loss of control of the Company over Jeffs’ Brands. For more information, see note 21(1).
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 – INTEREST IN OTHER ENTITIES: (continued)
| B. | Investments accounted for using the equity method: |
| 1. | The following table summarizes the total investments accounted for using the equity method: |
| December 31, 2023 |
December 31, 2022 |
|||||||
| USD in thousands | ||||||||
| Odysight.ai (1) | 9,375 | |||||||
| Parazero (4) | 976 | |||||||
| Laminera (note 4M) | 1,176 | |||||||
| Polyrizon (note 4H) | 499 | 214 | ||||||
| SciSparc Nutraceuticals (note 4E) | 1,940 | |||||||
| A.I Conversation Systems (note 4P) | 76 | |||||||
| Revoltz (note 4I) | 110 | 151 | ||||||
| Zig Miami 54 (note 4G) | 370 | |||||||
| 2,995 | 11,892 | |||||||
| 2. | The following table summarizes the total share of loss (profit) of investments accounted for using the equity method: |
|
Year ended 2023 |
Year ended December 31, 2022 |
Year ended December 31, 2021 |
||||||||||
| USD in thousands | ||||||||||||
| Odysight.ai (1) | 660 | 1,360 | 1,401 | |||||||||
| Automax Ltd. (2) | (275 | ) | ||||||||||
| Gix Internet (3) | 215 | 822 | ||||||||||
| Parazero (4) | 544 | 615 | ||||||||||
| Laminera (note 4M) | 1,176 | 157 | - | |||||||||
| SciSparc Nutraceuticals (note 4E) | 1,249 | - | - | |||||||||
| Polyrizon (note 4H) | 209 | 234 | 74 | |||||||||
| Elbit Imaging Ltd. (5) | 36 | 83 | ||||||||||
| A.I Conversation Systems (6) | 158 | |||||||||||
| Revoltz (note 4I) | 26 | 42 | 44 | |||||||||
| Zig Miami 54 (note 4G) | 85 | - | - | |||||||||
| 4,107 | 2,659 | 2,149 | ||||||||||
| (1) | Odysight.ai investment was accounted for as assets at fair value through profit or loss from March 21, 2023 (note 4C). |
| (2) | Automax Ltd. investment was accounted for as assets at fair value through profit or loss from March 9, 2021. |
| (3) | Gix Internet was consolidated from February 28, 2022 (note 4F). |
| (4) | Parazero investment was accounted for as assets at fair value through profit or loss from October 30, 2023 (note 4M). |
| (5) | Elbit Imaging Ltd. investment was accounted for as assets at fair value through profit or loss from October 18, 2022. |
| (6) | A.I Conversation Systems investment was accounted for as assets at fair value through profit or loss until September 5, 2023 (note 4M). |
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 – INTEREST IN OTHER ENTITIES: (continued)
| B. | Investments accounted for using the equity method: (continued) |
| 3. | This table summarize the Company’s rights in share capital and voting rights: |
| Main place of the |
Company rights in share capital and voting rights |
|||||
| business | % | |||||
| December 31, 2023 | ||||||
| Laminera | Israel | 19.70 | % | |||
| Polyrizon | Israel | 38.76 | % | |||
| SciSparc Nutraceuticals | USA | 49 | % | |||
| A.I Conversation Systems | Israel | 36.08 | % | |||
| Revoltz | Israel | 19.90 | % | |||
| Zig Miami 54 | USA | 60 | % | |||
| December 31, 2022 | ||||||
| Parazero | Israel | 40.35 | % | |||
| Laminera | Israel | 19.70 | % | |||
| Polyrizon | Israel | 37.03 | % | |||
| Odysight.ai | Israel | 27.02 | % | |||
| Fuel Doctor | Israel | 28.63 | % | |||
| Revoltz | Israel | 19.90 | % | |||
| 4. | Fair value of investments accounted for using the equity method for which there is a market price on the stock exchange: |
| December 31, 2023 |
December 31, 2022 |
|||||||||||||||
| Carrying amount | Quoted fair value |
Carrying amount | Quoted fair value |
|||||||||||||
| USD in thousands | ||||||||||||||||
| Odysight.ai (*) | 9,375 | 9,623 | ||||||||||||||
| A.I Conversation System | 76 | 882 | ||||||||||||||
| (*) | Odysight.ai investment was accounted for as assets at fair value through profit or loss from March 21, 2023. See note 4C. |
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 – INTEREST IN OTHER ENTITIES: (continued)
| C. | Odysight.ai |
As of December 31, 2022, the Company held 27.02% of the outstanding common stock of Odysight.ai (formerly known as ScoutCam Inc.) and the investment was accounted for using the equity method.
On March 21, 2023, Odysight.ai completed a private placement to existing stockholders, of 3,294,117 units, at a purchase price of USD 4.25 per unit. The Company did not participate in the private placement. Following the private placement, the Company’s holdings in Odysight.ai were diluted to 18.45% and the remaining holding was accounted for as investments at fair value through profit or loss (FVTPL). As a result of the transition, the Company recognized a loss of USD 2,946 thousand for the year ended December 31, 2023, in the consolidated statements of income/loss and other comprehensive income/loss.
On May 17, 2023, the Company signed a stock transfer agreement to sell the entirety of its stake in Odysight.ai for total proceeds of approximately USD 5.7 million. On July 11, 2023, the Company received the consideration for the sale of Odysight.ai in the amount of USD 5.7 million.
Activity in investment account:
|
January 1, 2023- |
||||
| USD in thousands |
||||
| Investment as of January 1, 2023 | 9,375 | |||
| Loss for the period | (660 | ) | ||
| Balance as of March 21, 2023 | 8,715 | |||
| Loss as a result of transition to FVTPL | (2,941 | ) | ||
| Fair value of the investment as of March 21, 2023 | 5,774 | |||
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 – INTEREST IN OTHER ENTITIES: (continued)
| C. | Odysight.ai (continued) |
|
January 1, 2022 - |
||||
| USD in thousands |
||||
| Investment as of January 1, 2022 | 10,735 | |||
| Loss for the year | (1,360 | ) | ||
| Investment as of December 31, 2022 | 9,375 | |||
Reconciliation to carrying amounts:
| December 31, 2022 |
||||
| USD in thousands |
||||
| Equity attributable to Odysight.ai shareholders’ as of December 31, 2022 | 11,785 | |||
| Adjustments to Equity | (1,628 | ) | ||
| Equity As adjusted as of December 31, 2022 | 10,157 | |||
| Group share in % | 27.02 | % | ||
| Group share | 2,744 | |||
| Balance of excess cost: | ||||
| Technology, net of deferred tax | 1,023 | |||
| Goodwill | 5,608 | |||
| Balance as of December 31, 2022 | 9,375 | |||
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 – INTEREST IN OTHER ENTITIES: (continued)
| D. | Eventer |
General
On October 14, 2020, the Company signed a share purchase agreement with Eventer, a technology company engaged in the development of unique tools for automatic creation, management, promotion, and billing of events and ticketing sales. Pursuant to the share purchase agreement, the Company invested USD 750 thousand and was issued an aggregate of 325,270 ordinary shares of Eventer, representing 58.7% of Eventer’s issued and outstanding share capital. The share purchase agreement provides that the Company will invest an additional investment of USD 250 thousand in a second tranche (“Earn-out), subject to Eventer achieving certain post-closing EBITDA based milestones during the fiscal years 2021 through 2023, or the “Milestones”. As of December 31, 2023, the Milestones have not been achieved.
Additionally, on October 14, 2020, the Company entered into an exchange agreement with Eventer’s shareholders, pursuant to which, during the period commencing on the second anniversary of the exchange agreement and ending fifty-four (54) months following the date of the exchange agreement, Eventer’s shareholders may elect to exchange all of their Eventer shares for ordinary shares of the Company. The Company treated the exchange agreement at the date of the business combination from accounting perspective as recognition of noncontrolling interests, in addition to the recognition of a liability in respect of a derivative (exchange options) which will be measured at fair value at each cut-off date and will be revalued. The changes in the fair value at each cut-off date will be recorded as a financial income/expense. As of December 31, 2023, and 2022, the Company concluded that the fair value of this derivative is immaterial.
On March 25, 2021 (the “Closing”), Eventer completed a finance round of approximately USD 2,250 thousand (approximately NIS 7,300 thousand) from a group of 7 investors, in exchange for 146,637 shares, representing 20% of Eventer’s issued and outstanding share capital after consummation of the investment. Following the finance round, the Company’s holding in Eventer decreased to 47.69% of Eventer’s issued and outstanding share capital. Additionally, the investment agreement provided that if in the following twelve months of the Closing, Eventer shall not consummate an IPO, then the price per share (“PPS”) shall be adjusted downward to reflect 50% of the PPS at the time of the Closing (the “Adjusted PPS”), and the 7 investors shall be issued with additional ordinary shares of Eventer, at no additional consideration. Eventer did not consummate an IPO, therefore on May 25, 2022, Eventer issued to the 7 investors 65,310 shares from which the Company received 19,518 shares. As a result, the Company’s holding in Eventer decreased to 46.21% from that date.
On December 6, 2023, the Company signed a share purchase agreement with Keshet Holdings LP (“Keshet”) to purchase its entire stake in Eventer in consideration of USD 250 thousand which will be paid in the Company’s shares. As of the issuance date of these financial statements, the closing of the agreement did not occur.
As of December 31, 2023, the Company held 46.21% of Eventer’s outstanding common stock.
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 – INTEREST IN OTHER ENTITIES: (continued)
| D. | Eventer (continued) |
Loan agreements between Eventer and the Company
On October 14, 2020, the Company signed a revolving loan agreement (“Loan Agreement”) with Eventer, according to which, the Company granted a loan to Eventer in the amount of USD 250 thousand (“Initial Advance”). According to the Loan Agreement, the Company committed to lend up to USD 1,250 thousand to Eventer through advances of funds upon Eventer’s request and subject to the Company’s approval. Advances extended under the Loan Agreement may be repaid and borrowed, in part or in full, from time to time. The Initial Advance should be repaid in twenty-four equals monthly instalments, commencing on the first anniversary of the Loan Agreement. Other advances extended under the Loan Agreement will be repaid immediately following, and in no event later than thirty days following the completion of the project or purpose for which they were made. Outstanding principal balances on the advances will bear interest at a rate equal to the higher of (i) 4% per year, or (ii) the interest rate determined by the Israeli Income Tax Ordinance [New Version] 5721-1961 and the rules and regulation promulgated thereunder. Interest payments will be made on a monthly basis.
During November 2021, the Company and Eventer agreed that the Initial Advance will be repaid the earlier of (i) six months following the maturity date of the Initial Advance; or (ii) immediately following an initial public offering of Eventer. The Company concluded the change in terms does not constitute a material modification of the loan.
Additionally, in November 2021, the Company loaned an additional amount of USD 250 thousand (“Additional Amount”) to Eventer which is to be repaid 6 months after the Additional Amount was received. The Additional Amount bears 4% interest per year.
On October 30, 2022, the Company and Eventer signed an amendment according to which the maturity date of the Initial Advance and the Additional Amount will be May 30, 2024. In the event Eventer will issue securities in consideration of at least USD 2 million or in the event of an IPO or right offering (the “Investment”), then the outstanding Initial Advance and the Additional Amount will automatically be converted into shares. The number of shares will be calculated by dividing the outstanding balance as of the closing date of the Investment by a price per share which shall reflect a 20% discount off the lowest price per share paid in the Investment.
Eventer concluded that the modified loan terms (“Modified Loan”) including an equity conversion feature, represent a substantial modification in accordance with IFRS 9 and is accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability.
Advertising rights from Keshet
As part of the finance round described above, Keshet, one of the 7 investors, committed to provide Eventer with advertising services for USD 1,250 thousand (approximately NIS 4,000 thousand), over a period of 1 year, until June 30, 2022. The agreement further provided that the investment proceeds to be paid by Keshet are to be netted by USD 1,250 thousand to be paid as consideration of the above-mentioned advertising services.
Accordingly, the net amount Eventer raised in the finance round amounted to USD 1,000 thousand, with advertising services recorded as a prepaid expense in the amount of USD 1,250 thousand. Eventer is not entitled to a refund in the event these advertising services are unutilized through the entire period until June 30, 2022.
Following lack of usage of advertising services by Eventer until June 30, 2022, Eventer and Keshet agreed to extend the entitlement period until December 31, 2023, such that the original volume would be utilized. As the extension in time period did not entitle Eventer to additional advertisement services, the Company concluded that the fair value of the additional benefit represented by the extension is immaterial.
In December 2022, Eventer assigned all of the unutilized advertising services in the amount of USD 660 to Screenz Cross Media Ltd. as part of the debt repayment. See more information below regarding the agreement with Screenz Cross Media Ltd.
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 – INTEREST IN OTHER ENTITIES: (continued)
| D. | Eventer (continued) |
Loan agreement with Safee Cyber Technologies Inc.
On August 1, 2022, the Company and Eventer signed a loan agreement with Safee Cyber Technologies Inc. (“Safee”).
According to the loan agreement, the Company loaned Safee an amount of NIS 250 thousand (USD 74 thousand) and Eventer loaned Safee an amount of NIS 300 thousand (USD 89 thousand) consisting of NIS 100 thousand (USD 30 thousand) in cash and by assigning to Safee NIS 200 thousand (USD 59 thousand) of the unutilized advertising rights Eventer had purchased from Keshet in March 2021 as mentioned above.
Additionally, for the purpose of loan repayment, Eventer’s loan will be considered as NIS 200 thousand (USD 59 thousand) in total. As a result, Eventer recorded an expense of NIS 100 thousand (USD 29 thousand).
Safee shall repay the loans and the interest out of the proceeds that it will receive, directly and/or indirectly, from the sale of non-fungible token (NFT) of the Israeli artist Noa Kirel (“Kirel NFT”), in a way that the Company and Eventer will be entitled to receive the relative part of the loans (excluding 10% of such proceeds). Safee shall not use the Kirel NFT proceeds for any other purpose and shall not grant any rights to any third party in the proceeds, until the full repayment of the loans and the interest.
Following the full repayment of the loans and the interest, Safee will be entitled to receive 43.3% of the Kirel NFT proceeds and each the Company and Eventer will be entitled to receive 28.35% of the Kirel NFT proceeds.
In the event that the net proceeds shall not be sufficient to repay the loans within the period of 2 years, the Company and Eventer shall waive all unpaid amounts of the loans.
The loans bear a fixed annual interest at the minimal rate required according to the applicable tax law, starting from the date the loan was provided and until its full repayment.
The loan was accounted for as financial assets measured at amortized cost.
As of December 31, 2023, no repayments were made as Safee did not receive any proceeds from Kirel NFT sales.
Contingent liabilities
On December 14, 2022, a motion to certify a class action suit was filed against Eventer and two of its directors, alleging the violation of the provisions of the Prohibition of Discrimination in Products, Services, and Entry into Places of Entertainment and Public Places Law. The plaintiff claims that Eventer enables the allocation of different kinds of tickets to different groups (such as women, children etc.), thereby allowing structured discrimination. According to the opinion of Eventer’s legal counsel, the chances of the class action to be rejected are more likely than not both against Eventer and its directors. A hearing was scheduled for January 3, 2024, and was postponed to April 24, 2024.
On April 1, 2024, a lawsuit was filed against Eventer and the Company by the minority shareholders of Eventer. For more information, see note 21(4).
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 – INTEREST IN OTHER ENTITIES: (continued)
| D. | Eventer (continued) |
Agreement with Screenz Cross Media Ltd.
On February 4, 2021, Eventer signed an addendum to the agreement with Screenz Cross Media Ltd. (a company indirectly controlled and managed by Eli Uzan who served as Eventer’s Director) (hereafter “Screenz”). The agreement was signed during November 2020 for the purpose of collaborating in the field of virtual conferences. According to the provisions of the addendum to the agreement, Eventer will receive an exclusive license for using the broadcasting system of Screenz with respect to the field of virtual conferences and development services (“Software License”), and in exchange will pay Screenz an amount of USD 1,500 thousand (approximately NIS 4,280 thousand) over a period of eight months, as well as 8% from the revenues earned from using the Software License.
In December 2021, March 2022 and December 2022, several amendments were signed between Eventer and Screenz in order to modify the terms of the loan.
Following the last amendment in December 2022, Eventer repaid its debt to Screenz by assigning to Screenz the remaining unutilized advertising rights Eventer had purchased from Keshet. The prepaid expense balance in respect of these advertising rights in the books of Eventer as of the repayment date, which approximated the advertising rights’ fair value, was USD 660 thousand. The debt balance as of the date of the amendment was USD 1,062 thousand (NIS 3,862 thousand). The difference between the debt balance and the advertising rights of USD 402 thousand was recorded as a capital contribution from Screenz to Eventer. It was also determined that Screenz will have the first right to receive any money received from Eventer and resulting from a digital ticketing platform for interactive virtual events up to a total amount of USD 480 thousand. As of December 31, 2023, the Company concluded that the fair value of this commitment is immaterial given the uncertainty of generating revenues by Eventer from interactive virtual events.
As of December 31, 2023, the management of Eventer reviewed the carrying amount of the Software License and determined that it was not recoverable as no cashflows are expected to be generated by the Software License in the foreseeable future. As such, the Group recognized an impairment loss of USD 1,304 thousand in the consolidated statements of income/loss and other comprehensive income/loss.
Deferred offering costs
During 2021, Eventer recorded USD 470 thousand as deferred offering costs in relation to a planned initial public offering (“IPO”). During 2022, Eventer recorded these deferred offering costs as an expense due to the fact that the offering was not consummated.
Share based compensation grants
| 1. | On March 30, 2021, Eventer granted its CEO 29,944 options to purchase 29,944 shares at an exercise price of 0.001 NIS per share. The options shall vest over a period of three years. |
The fair value of this grant was approximately NIS 1,668 thousand (USD 473 thousand). For the year ended December 31, 2023, NIS 127 thousand (USD 35 thousand) were recognized and recorded as expenses (2022: NIS 418 thousand (USD 124 thousand), 2021: NIS 1,123 thousand (USD 347 thousand)).
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 – INTEREST IN OTHER ENTITIES: (continued)
| D. | Eventer (continued) |
Share based compensation grants (continued)
| 2. | On March 30, 2021, Eventer granted Round Robin Ltd, one of the founding partners of Eventer, 29,944 options to purchase 29,944 shares at exercise price of 0.001 NIS per share. The options shall vest over a period of three years. |
The fair value of this grant was approximately NIS 1,668 thousand (USD 473 thousand). For the year ended December 31, 2023, NIS 127 thousand (USD 35 thousand) were recognized and recorded as expenses (2022: NIS 418 thousand (USD 124 thousand), 2021: NIS 1,123 thousand (USD 347 thousand)).
| E. | Jeffs’ Brands |
General
Jeffs’ Brands was incorporated in Israel on March 7, 2021. As of December 31, 2023, Jeffs’ Brands had five wholly owned subsidiaries - Smart Repair Pro Inc. (“Smart Pro”), Top Rank Ltd. (“Top Rank”), Jeffs’ Brands Holdings Inc. (“Jeffs’ Brands Holdings”), Fort Products Ltd. (“Fort”) and Fort Products LLC (“Fort US”). Jeffs’ Brands and its subsidiaries are engaged in the acquisition, improvement and operation of virtual stores (the “Brands”) mainly on the Amazon.com (“Amazon”) website.
As of December 31, 2023, the Company held 34.11% of the issued and outstanding share capital of Jeffs’ Brands.
On January 25, 2024, Jeffs’ Brands entered into a private placement transaction with certain institutional investors for aggregate gross proceeds of approximately USD 7,275 thousand. Following the private placement, the Company’s holdings in Jeffs’ Brands decreased to 13.37% of the issued and outstanding share capital of Jeffs’ Brands. For additional information, see note 21(1).
Wellution Agreement
On February 23, 2023, Jeffs’ Brands and Jeffs’ Brands Holdings, entered into a stock purchase agreement (the “Wellution Agreement”), with SciSparc Ltd. (“SciSparc”), a related party of Jeffs’ Brands, pursuant to which, on March 22, 2023, Jeffs’ Brands Holdings acquired from SciSparc 57 shares of common stock of SciSparc Nutraceuticals Inc. (“SciSparc Nutraceuticals”), a wholly-owned subsidiary of SciSparc that owns and operates Wellution, an Amazon food supplements and cosmetics brand, representing approximately 49% of the issued and outstanding common stock of SciSparc Nutraceuticals, for approximately USD 2,989 thousand in cash (“Purchase Price”). As of December 31, 2023, Jeffs’ Brands had an outstanding liability to SciSparc of USD 98 thousand included in accrued expenses and other current liabilities in the consolidated statements of financial position. In addition, Jeffs’ Brands paid transaction costs in the amount of USD 199 thousand.
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 – INTEREST IN OTHER ENTITIES: (continued)
| E. | Jeffs’ Brands (continued) |
Wellution Agreement (continued)
Additionally, subject to the Wellution Agreement, on March 22, 2023, Jeffs’ Brands entered into a consulting agreement with SciSparc Nutraceuticals (the “SciSparc Consulting Agreement”), pursuant to which Jeffs’ Brands will provide management services to SciSparc Nutraceuticals for the Wellution brand for a monthly fee of USD 20 thousand. In addition, Jeffs’ Brands received a one-time signing bonus in the amount of USD 51 thousand. The SciSparc Consulting Agreement is for an undefined period of time and may be terminated by either party with a 30 days advance notice. In November 2023, Jeffs’ Brands and SciSparc agreed to reduce the monthly fee to USD 10 thousand.
Jeffs’ Brands did not obtain any substantive processes, assembled workforce, or employees capable of producing outputs in connection with the acquisition. Therefore, the transaction was accounted for as an asset acquisition, as the acquired assets did not meet the definition of a business as defined by IFRS 3, Business Combinations.
The Purchase Price and the transaction costs were allocated between the individual assets and liabilities of SciSparc Nutraceuticals based on their relative fair values at the date of the acquisition.
Jeffs’ Brands Holdings owns 49% of the voting rights in SciSparc Nutraceuticals and has the right to appoint two out of five directors. Management of Jeffs’ Brands has determined that it has significant influence over SciSparc Nutraceuticals and accordingly accounted for its investment under the equity method.
As of December 31, 2023, management of Jeffs’ Brands assessed whether there was objective evidence that its net investment in SciSparc Nutraceuticals was impaired. Management of Jeffs’ Brands determined that the decrease in revenues and operating losses of SciSparc Nutraceuticals were indicative of such objective evidence. Accordingly, Jeffs’ Brands management’s fair value expert performed an impairment test in accordance with IAS 36 and determined that the carrying value of the investment exceeded its recoverable amount. As a result, an impairment loss of USD 955 thousand was recorded within equity losses in the consolidated statements of income/loss and other comprehensive income/loss.
Activity in investment account:
| February 23, 2023 – December 31, 2023 |
||||
| USD in thousands |
||||
| Balance as of January 1, 2023 | ||||
| Purchase on February 23, 2023 | 3,189 | |||
| Loss for the period | (1,249 | ) | ||
| Balance as of December 31, 2023 | 1,940 | |||
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 – INTEREST IN OTHER ENTITIES: (continued)
| E. | Jeffs’ Brands (continued) |
Wellution Agreement (continued)
Also pursuant to the Wellution Agreement, on March 22, 2023, Jeffs’ Brands issued 35,345 of its ordinary shares to SciSparc and SciSparc issued 13,858 of its ordinary shares to Jeffs’ Brands in a share exchange (collectively, the “Exchange Shares”), representing 2.97% and 4.99%, respectively, of Jeffs’ Brands’ and SciSparc’s issued and outstanding ordinary shares. The number of Exchange Shares acquired by each company was calculated by dividing USD 288,238 by the average closing price of the relevant company’s shares on the Nasdaq Capital Market for the 30 consecutive trading days ending on the third trading day immediately prior to the closing. The investment in SciSparc was accounted for as financial assets measured at fair value through profit or loss (FVTPL). See note 5.
Fort share purchase agreement
On March 2, 2023, Jeffs’ Brands entered into a share purchase agreement (the “Fort SPA”), with the holders (the “Sellers”), of all of the issued and outstanding share capital of Fort, a company incorporated under the laws of England and Wales and engaged in the sale of pest control products primarily through Amazon.uk, pursuant to which, on March 9, 2023, Jeffs’ Brands acquired all of the issued and outstanding share capital of Fort, for approximately £2,000 thousand (approximately USD 2,400 thousand) in cash (the “Fort Acquisition”). As of December 31, 2023, Jeffs’ Brands had an outstanding liability to the sellers of USD 332 thousand included in accrued expenses and other current liabilities in the consolidated statements of financial position.
On February 29, 2024, Jeffs’ Brands extended a side letter to the Fort SPA with the Sellers, pursuant to which, Jeffs’ Brands agreed to increase certain adjustment amount payments to the Sellers by approximately £100 thousand (approximately USD 128 thousand). These adjustments were included in the outstanding liability as of December 31 ,2023.
Furthermore, in connection with the Fort Acquisition, on March 9, 2023, Jeffs’ Brands and Fort entered into settlement agreements with all of Fort’s employees, including the Sellers, by which such employees’ employment with Fort will terminate three months following March 9, 2023.
On March 9, 2023, Jeffs’ Brands and the Sellers entered into a consulting agreement, pursuant to which the Sellers will provide Jeffs’ Brands with consultancy services for a period of three months for a monthly fee of approximately USD 3 thousand. On September 20, 2023, Jeffs’ Brands and the Sellers entered into a new consulting agreement for an indefinite period at a monthly fee of approximately USD 4.5 thousand effective as of June 1, 2023.
Jeffs’ Brands did not obtain any substantive processes, assembled workforce, or employees capable of producing outputs in connection with the acquisition. Therefore, the transaction was accounted for as an asset acquisition, as the acquired assets did not meet the definition of a business as defined by IFRS 3, Business Combinations.
The purchase price and the transaction costs were allocated between the individual assets and liabilities of Fort based on their relative fair values at the date of the acquisition.
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 – INTEREST IN OTHER ENTITIES: (continued)
| E. | Jeffs’ Brands (continued) |
Initial Public Offering
On August 30, 2022, Jeffs’ Brands completed its initial public offering (“IPO”) on the Nasdaq. In connection with the IPO, Jeffs’ Brands issued 531,069 ordinary shares, no par value per share, and 3,717,473 warrants (“IPO Warrants”), to purchase up to 531,069 ordinary shares, at an initial exercise price of USD 28.28 per ordinary share. Additionally, Jeffs’ Brands issued 185,873 warrants to the underwriter to purchase up to 26,554 ordinary shares at an exercise price of USD 36.4 per ordinary share. The underwriter partially exercised its right to purchase an additional 425,912 IPO Warrants to purchase up to 60,845 ordinary shares for a total consideration of USD 4 thousand. Jeffs’ Brands received total net proceeds of USD 13.4 million after deducting issuance costs of USD 2.1 million. Following the IPO completion, the Company’s holdings in Jeffs’ Brands decreased to 35.94% of the issued and outstanding share capital of Jeffs’ Brands.
The IPO Warrants became exercisable immediately after the completion of the IPO (and until August 30, 2027). On the 90th day after completion of the IPO, the exercise price of the IPO Warrants was adjusted to be equal to the lowest quoted share price during the 90 days. The daily quoted price used in the determination of such minimum was calculated as the weighted average price of each day. The exercise price, however, could not be reduced to less than USD 14.14. The IPO Warrants have a cashless exercise mechanism. On November 28, 2022, the IPO Warrant’s exercise price was adjusted to USD 14.14.
The IPO Warrants contain a down round protection, so that for a period of two years from the date of issuance of the IPO Warrant, the exercise price is adjusted to the price in subsequent fundings of Jeffs’ Brands, if shares in these fundings are sold at a price per share below the warrant exercise price at the time of such future fundings (or if other instruments with an exercise / conversion price at a price below the warrant exercise price are sold). The exercise price, however, may not be reduced to less than USD 14.14.
Additionally, additional warrants were issued to each qualified buyer who continued to hold at least 120,192 IPO Warrants as of November 28, 2022 (the “Additional Warrants”). Accordingly, Jeffs’ Brands issued 2,824,525 Additional Warrants to purchase 403,504 ordinary shares. Each Additional Warrant has substantially the same terms as the As-Adjusted IPO Warrant; provided, however, that the term of each Additional Warrant will be five (5) years from the issuance date and such Additional Warrant will not be listed on any securities exchange. The Additional Warrants may be redeemed by Jeffs’ Brands at any time at a price equal to three times the Initial Exercise Price, or USD 42.42.
Furthermore, so long as the Additional Warrants are outstanding, each Additional Warrant holder receives semi-annual payments equal to approximately 2.3% of Jeffs’ Brands gross revenues, calculated for the first and second six-month fiscal periods (“Revenue Sharing Payment”). The Revenue Sharing Payment related to 2023 and 2022 was USD 269 thousand and USD 40 thousand, respectively.
The IPO Warrants and the Additional Warrants were accounted for as derivative liabilities measured at fair value through profit or loss (FVTPL) (see note 5).
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 – INTEREST IN OTHER ENTITIES: (continued)
| E. | Jeffs’ Brands (continued) |
Related parties’ loans
On February 2, 2021, the Company entered into loan agreements with Smart Pro and Smart Pro’s other shareholders, according to which, the Company and Smart Pro’s other shareholders extended loans of USD 3,760 thousand and USD 940 thousand, respectively, to finance Smart Pro’s additional purchases of three new brands on the Amazon online marketplace. The loans bear an annual compound interest of 4% and will be repaid on February 2, 2026.
Until May 3, 2022, the loans were measured at amortized cost.
As of May 3, 2022, Smart Pro had outstanding loans to the Company, Mr. Hakmon and L.I.A. Pure Capital Ltd. of USD 4.1 million, USD 940 thousand, and USD 109 thousand, respectively.
On May 3, 2022, Jeffs’ Brands entered into assignments to loan agreements with the Company, Smart Pro, Mr. Hakmon and L.I.A. Pure Capital Ltd, pursuant to which Jeffs’ Brands assumed Smart Pro’s obligations under the outstanding loans and agreed that unless previously repaid, pursuant to the terms of the respective loan agreements with such parties, effective immediately upon the consummation of IPO, all outstanding principal due to each such party shall be automatically converted into a number of Jeffs’ Brands ordinary shares equal to the quotient obtained by dividing the outstanding principal amount due to such party, by the per ordinary share price obtained by dividing USD 10 million by the fully diluted issued and outstanding ordinary shares as of immediately prior to the closing of the IPO. Any accrued and unpaid interest due to such party as of such date will be paid in cash.
Jeffs’ Brands concluded that the modified loan terms (“Modified Loan”) including an equity conversion feature upon IPO, represent a substantial modification in accordance with IFRS 9 and is accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability. Accordingly, the difference between the fair value and face value of the loan attributable to the Company was recorded as a deemed contribution by the Company to Jeffs’ Brands. Similarly, the difference between the fair value and face value of the loan attributable to the non-controlling interest was recorded as a deemed contribution by the non-controlling interest to Jeffs’ Brands.
In connection with the IPO that was consummated on August 30, 2022, the loans between the Company, Jeffs’ Brands, Mr. Hakmon and L.I.A. Pure Capital Ltd. were converted into 209,088 ordinary shares.
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 – INTEREST IN OTHER ENTITIES: (continued)
| E. | Jeffs’ Brands (continued) |
Amazon Loans
On May 9, 2022, Smart Pro entered into a loan agreement with Amazon. Pursuant to the loan agreement, Smart Pro received from Amazon an aggregate amount of USD 153 thousand. The loan matures within 12 months and bears an annual interest at a rate of 9.99% per year. In order to secure the loan, Smart Pro pledged its financial balances on its Amazon account on Amazon and its inventories held in Amazon’s warehouses, in favor of Amazon. In March 2023, the loan was fully repaid.
Third parties’ loans
In July 2021, Smart Pro entered into a loan agreement with two third parties (“Lenders”). The loans bore an annual interest rate of 10% and were payable in January 2022. Smart Pro was entitled to extend the loans by an additional sixty days, with additional interest of 1% per month. In addition, pursuant to the loan agreement, in the event of an IPO of Jeffs’ Brands, the Lenders would be entitled to ordinary shares of Jeffs’ Brands at an aggregate value of USD 250 thousand with a conversion price at the IPO price. In July 2021, the loans principal of USD 750 thousand was received. The proceeds from the Lenders were first allocated to the liability to issue a variable number of shares based on its fair value at the date of issuance in an amount of USD 62 thousand, with a corresponding discount recorded on the third-party loan. The derivate liability was revalued at each period-end and amounted to USD 137 thousand as of December 31, 2021.
On November 23, 2021, the loan agreement was amended to extend the maturity date of the loan to the earlier of (i) March 31, 2023, or (ii) the closing of an IPO of Jeffs’ Brands. Based on Jeffs’ Brands management’s assessment, the amendment resulted in a significant modification to the loans in accordance with IFRS 9. As a result of the debt extinguishment, Jeffs’ Brands recorded a financial gain in the amount of USD 14 thousand.
Following the IPO in August 2022, Jeffs’ Brands repaid the third-party loans. Furthermore, effective as of August 30, 2022, the closing date of the IPO, and pursuant to the loan agreement, Jeffs’ Brands issued 60,096 warrants to the Lenders to purchase up to 8,586 ordinary shares, exercisable at an exercise price of USD 28.28 per share, exercisable for three years following the IPO. The warrants have a cashless exercise mechanism.
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 – INTEREST IN OTHER ENTITIES: (continued)
| E. | Jeffs’ Brands (continued) |
Bank Leumi Loan
On February 22, 2022, Jeffs’ Brands entered into a loan agreement with Bank Leumi Le-Israel (“Bank Leumi”) to provide for a line of credit in an aggregate amount of up to USD 1,000 thousand, which Jeffs’ Brands may draw in two tranches at its request, but in no event after July 21, 2022. Pursuant to the loan agreement, amounts drawn bear interest at a rate of Secured Overnight Financing Rate (“SOFR”) plus 3.25% annually. On March 3, 2022, Jeffs’ Brands drew USD 400 thousand under the line of credit. On June 2, 2022, Jeffs’ Brands drew another USD 200 thousand under the line of credit. Following an agreement with Bank Leumi, the loan was extended until October 31, 2022. All amounts outstanding under the line of credit were fully repaid on September 6, 2022.
Deferred offering costs
Jeffs’ Brands capitalized certain legal and other third-party fees that were directly related to the Jeffs’ Brands IPO. As of December 31, 2021, there were USD 366 thousand of deferred offering costs included in other non-current assets on the balance sheet.
The total gross consideration from the IPO was initially allocated to the derivative warrant liability based on its fair value and the remaining amount was allocated to the Ordinary Shares issued and recognized as a component of equity. Issuance costs were allocated between the warrant liability and Ordinary Shares based on their relative fair values.
Ordinary shares and incentive plan
On January 19, 2022, Jeffs’ Brands Board of Directors adopted the 2022 Incentive Option Plan (“Plan”). A total of 186,718 ordinary shares were reserved and subject to the Plan. The Plan is intended as an incentive to retain directors, officers, employees, consultants and advisers of Jeffs’ Brands. As of December 31, 2023, Jeffs’ Brands had not granted awards under the Plan.
On February 17, 2022, Jeffs’ Brands Board of Directors approved the issuance of bonus shares (equivalent to a stock dividend) on a basis of 664.0547 (prior to adjustments for subsequent reverse share split) ordinary shares of Jeffs’ Brands for each ordinary share issued and outstanding as of the close of business on February 17, 2022 (provided that any fractional shares be rounded down to the nearest whole number), resulting in an aggregate issuance by Jeffs’ Brands as of such date of 6,630,547 (prior to adjustments for subsequent reverse share splits) ordinary shares. Additionally, the Board approved an increase in the authorized share capital of Jeffs’ Brands to 100,000,000 (43,567,567 after giving effect to the two subsequent reverse share splits) ordinary shares.
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 – INTEREST IN OTHER ENTITIES: (continued)
| E. | Jeffs’ Brands (continued) |
Ordinary shares and incentive plan (continued)
On May 3, 2022, Jeffs’ Brands’ Board of Directors approved a 0.806-for-1 reverse split of Jeffs’ Brands issued and outstanding ordinary shares, effective as of May 3, 2022, pursuant to which, holders of Jeffs’ Brands ordinary shares received 0.806 of ordinary shares for every one ordinary share held as of immediately prior to such date.
On June 16, 2022, Jeffs’ Brands’ Board of Directors approved a 1-for-1.85 reverse split of Jeffs’ Brands issued and outstanding ordinary shares, effective as of June 16, 2022, pursuant to which, holders of Jeffs’ Brands ordinary shares received one ordinary share for every 1.85 ordinary shares held as of such date. The reverse stock split proportionally reduced the number of Jeffs’ Brands authorized share capital.
On October 17, 2023, Jeffs’ Brands Board of Directors approved a 1-for-7 reverse split of Jeffs’ Brands issued and outstanding ordinary shares, effective as of November 3, 2023, pursuant to which holders of Jeffs’ Brands ordinary shares received one ordinary Share for every 7 ordinary shares held as of such date. The reverse stock split proportionally did not reduce the number of authorized share capital. The effect of such reverse split was applied retrospectively for all the number of shares, warrants, related par value and others related to Jeffs’ Brands.
Consultant agreement with Pure Capital
On October 26, 2022, Jeffs’ Brands and L.I.A Pure Capital Ltd. (“Pure Capital”), a related party of Jeffs’ Brands, entered into a consulting agreement, pursuant to which Pure Capital will provide consulting services to Jeffs’ Brands for a monthly fee of NIS 57.5 thousand (approximately USD 16.5 thousand). Jeffs’ Brands paid Pure Capital a one-time signing bonus in the amount of NIS 425 thousand (approximately USD 121 thousand) for their services to Jeffs’ Brands from the day of Jeffs’ Brands inception until the closing of the IPO. As part of the consulting agreement, Pure Capital is also entitled to the following payments: (i) an amount equal to 7% of the gross proceeds paid to Jeffs’ Brands in connection with any exercise of warrants, whether or not currently outstanding; and (ii) 8% of the total consideration paid in connection with any purchase of a new brand, businesses, or similar events initiated or assisted by Pure Capital and approved by the Chief Executive Officer and Chairman of the Board based on agreement with Pure Capital. The consulting agreement is for an undefined period of time and may be terminated after 3 years from October 26, 2022, by either party upon 30 days advance notice.
In March 2023, Jeffs’ Brands paid Pure Capital USD 352 thousand in accordance with the terms of the consulting agreement. The consultancy fees were paid in consideration with the investments in Fort and SciSparc Nutraceuticals and were capitalized on the investments cost.
Additionally, on October 26, 2022, Jeffs’ Brands and Pure NJ Logistics LLC, a company owned by Pure Capital and a director of Jeffs’ Brands, entered into a warehouse storage agreement for a warehouse located in New Jersey, USA.
In addition, on February 5, 2024, Jeffs’ Brands paid Pure Capital USD 100 thousand in connection with the completion of the private placement transaction (see note 21(1)).
Leases
On May 21, 2022, Jeffs’ Brands entered into a short-term lease agreement for its offices from the Company and participated in 50% of the lease and related maintenance expenses. Jeffs’ Brands paid USD 86 thousand plus VAT on December 30, 2022.
Additionally, Jeffs’ Brands leases office space and warehouse with a remaining useful life of less than 3 years.
As of December 31, 2023, Jeffs’ Brands’ right-of-use asset and lease liability totaled USD 127 thousand and USD 138 thousand, respectively.
Jeffs’ Brands uses its incremental borrowing rate as the discount rate for its leases, as the implicit rate in the lease is not readily determinable. As of December 31, 2023, Jeffs’ Brands leases had a weighted average remaining lease term of 3 years and a weighted average borrowing rate of approximately 10%.
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 – INTEREST IN OTHER ENTITIES: (continued)
| F. | Gix Internet |
General
As of December 31, 2022, the Company held 42.25% of the issued and outstanding share capital of Gix Internet.
As of December 31, 2022, Gix Internet held 76% of the issued and outstanding share capital of Viewbix Inc. Viewbix Inc. held 100% of the issued and outstanding share capital of Gix Media Ltd. (“Gix Media”). Gix Media held 70% of the issued and outstanding share capital of Cortex Media Group Ltd. (“Cortex”), a private company formed under the laws of the State of Israel, operating in the field of online media and advertising.
On January 23, 2023, Gix Media acquired an additional 10% of the share capital of Cortex, increasing its holdings to 80% in consideration for USD 2,625 thousand (the “Subsequent Purchase”). The Subsequent Purchase was financed by Gix Media’s existing cash balances and by a long-term bank loan received on January 17, 2023, in the amount of USD 1,500 thousand. The Subsequent Purchase was recorded as a transaction with non-controlling interests in the Group’s consolidated statements of changes in shareholders equity for the year ended December 31, 2023.
On December 11, 2023, the Company and Gix Internet signed an agreement pursuant to which the Company invested NIS 1.3 million (USD 380 thousand) of which NIS 800 thousand (USD 215 thousand) were paid in cash and NIS 500 thousand (USD 165 thousand) in Company shares. Following this transaction, the Company’s holdings in Gix Internet increased to 45.75% of the issued and outstanding share capital of Gix Internet. The transaction was recorded as a transaction with non-controlling interests in the Group’s consolidated statements of changes in shareholders equity for the year ended December 31, 2023.
Dividends
On September 14, 2022, Gix Media declared a dividend in the amount of USD 1,000 thousand. The amount, net of tax, was distributed partially as of December 31, 2022. The remaining amount was distributed by Gix Media in January 2023.
On December 25, 2022, Cortex declared a dividend in the total amount of USD 445 thousand to the non-controlling interests. The amount was distributed by Cortex to non-controlling interests in two payments of USD 219 thousand and USD 226 thousand in February and March 2023, respectively.
On June 29, 2023, Cortex declared and distributed a dividend in the total amount of USD 153 thousand to the non-controlling interests.
Bank loans
Short term loans:
| December 31, 2023 |
December 31, 2022 |
|||||||
| USD in thousands | ||||||||
| Short term bank loans | 8,952 | 5,025 | ||||||
| Current maturities of long-term bank loans | 1,500 | |||||||
| 8,952 | 6,525 | |||||||
Long term loans:
| December 31, 2023 |
December 31, 2022 |
|||||||
| USD in thousands | ||||||||
| Long term bank loans | 2,881 | |||||||
| Loans from others | 234 | |||||||
| 234 | 2,881 | |||||||
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 – INTEREST IN OTHER ENTITIES: (continued)
| F. | Gix Internet (continued) |
Bank loans (continued)
Bank loans to Gix Internet:
On October 13, 2021, Gix Internet entered into a loan agreement with Bank Leumi in an aggregate amount of up to NIS 3 million (USD 927 thousand) for 48 months period at an annual interest rate of prime plus 2.92%. The loan was classified as a long-term loan.
On September 19, 2022, the loan was fully repaid.
Financing Agreement with Gix Media:
On October 13, 2021, Gix Media entered into a financing agreement with Bank Leumi to provide a line of credit in an aggregate amount of up to USD 3.5 million and a long-term loan in an aggregate amount of up to USD 6 million (the “Financing Agreement”). The main points of the Financing Agreement include:
| ● | Credit line in an aggregate amount of up to USD 3.5 million to be utilized for a period of up to 48 months. The amounts that will be drawn from the credit line will bear interest of LIBOR plus 3.2% annually. The credit line was classified as short-term loan. |
| ● | USD 6 million loan for 48 months period. The loan shall bear interest at rate of LIBOR plus 4.12% annually. The loan was classified as long-term loan. |
Gix Media undertook to meet financial covenants over the life of the loans as follows: (1) the ratio of debt to EBITDA, based on Gix Media’s consolidated financial statements in all 4 consecutive quarters, will not exceed 2.4 in the first two years and will not exceed 1.75 in the following two years.
On July 25, 2022, Gix Media and Bank Leumi entered into an addendum to the Financing Agreement, according to which, Bank Leumi provided Gix Media with a loan of USD 1,500, to be withdrawn at the discretion of Gix Media no later than January 31, 2023 (the “Additional Loan”).
On January 23, 2023, Gix Media acquired an additional 10% of Cortex’s capital shares which was financed by Gix Media’s existing cash balances and by the Additional Loan received on January 17, 2023, in the amount of USD 1,500 to be repaid in 42 monthly payments at an annual interest rate of SOFR + 5.37%.
On October 10, 2023, Gix Media and Bank Leumi entered into a second addendum to the Financing Agreement, according to which, Bank Leumi extended an existing monthly renewable credit line of USD 3,500 (the “Gix Media Credit Line”) by one year which will expire on October 13, 2024. The amounts that are drawn from the Gix Media Credit Line bear an annual interest of SOFR + 4.05%. In addition, according to the second addendum, the 2.4 ratio of debt to EBITDA was extended by nine months to June 30, 2024.
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 – INTEREST IN OTHER ENTITIES: (continued)
| F. | Gix Internet (continued) |
Bank loans (continued)
Financing Agreement with Gix Media: (continued)
As of December 31, 2023, the Gix Media Credit Line of USD 3,500 was fully withdrawn by Gix Media.
As of December 31, 2023, Gix Media did not meet the financial covenants. Gix Media has received a waiver by Bank Leumi to be affected until April 16, 2024, according to which, Bank Leumi agreed to delay its right for immediate repayment of the loans. Accordingly, and since the waiver is for a period less than 12 months, Gix Media reclassified all of its long-term loans as a current liability in the consolidated statement of financial position as of December 31, 2023.
Cortex Credit Line:
On September 21, 2022, Cortex and Bank Leumi entered into an addendum to an existing loan agreement (“Cortex Loan Agreement”) between the parties, dated August 15, 2021. As part of the addendum to the loan agreement, Bank Leumi provided Cortex with a monthly renewable credit line of USD 1,500 thousand (the “Cortex Credit Line”). The Cortex Credit Line is determined every month at the level of 70% of Cortex’s customers’ balance. The amounts that are drawn from the Cortex Credit Line bear an annual interest of SOFR + 3.52% (Overnight Financing Rate Secured, guaranteed daily interest as determined in accordance with the Federal Bank in New York).
On April 27, 2023, Bank Leumi increased the Cortex Credit Line by USD 1,000.
In September 2023, Cortex and Bank Leumi entered into an additional addendum to the Cortex Loan Agreement, in which Bank Leumi extended the Cortex Credit Line of USD 2,500 by one year which will expire on September 20, 2024. The amounts that are drawn from the Cortex Credit Line bear an annual interest of SOFR + 4.08%.
As of December 31, 2023, Cortex withdrew USD 1,500 of the Cortex Credit Line.
Loan agreement between the Company and Gix Internet
On October 13, 2021, the Company entered into a loan agreement with Gix Internet, pursuant to which, Gix Internet received an aggregate amount of USD 1,240 thousand (NIS 4,000 thousand) from the Company. The loan bears interest at a rate equivalent to the minimal interest rate recognized and attributed by the Israel Tax Authority (2.9% in 2023). According to the agreement, the loan will be repaid in full, together with the accrued interest, in one (1) instalment upon the earliest of: (i) the closing of a rights offering by Gix Internet for an aggregate amount of at least NIS 12,000 thousand (approximately USD 3,858 thousand); or (ii) June 30, 2022. Upon the consolidation of Gix Internet’s financial statements as of February 28, 2022, as further described above, the loan was eliminated.
The Company concluded the stated interest is materially lower than its market price. The loan was initially measured at fair value in accordance with IFRS 9, “Financial Instruments”. Accordingly, the difference between the fair value and face value of the loan attributable to the Company was recorded as a deemed contribution by the Company to Gix Internet.
On November 2, 2022, the Company received a total of NIS 1 million (USD 282 thousand) as repayment of the loan and the accrued interest up to that date.
On August 25, 2022, the Company and Gix Internet signed an addendum to the loan agreement, effective as of July 1, 2022. The addendum changes the repayment terms of the loan in the amount of NIS 3 million (USD 810 thousand) to June 30, 2023. In addition, the Company will be entitled to request the conversion of all or part of the balance of the extended loan in exchange for Gix Internet’s shares.
Gix Internet concluded the modified loan terms (“Modified Loan”), represented a substantial modification in accordance with IFRS 9 and is accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability. Accordingly, the difference between the fair value and face value of the loan attributable to the Company was recorded as a deemed contribution by the Company to Gix Internet.
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 – INTEREST IN OTHER ENTITIES: (continued)
| F. | Gix Internet (continued) |
Loan agreement between the Company and Gix Internet (continued)
On August 30, 2023, the Company and Gix Internet signed an addendum to the loan agreement, effective as of June 30, 2023. Pursuant to the addendum, the loan repayment will be postponed until January 1, 2024. The Company concluded the modified loan terms do not represent a substantial modification in accordance with IFRS 9.
On February 8, 2024, the Company and Gix Internet signed an addendum to the loan agreement, effective as of January 1, 2024. Pursuant to the addendum, the loan repayment will be postponed until July 1, 2024.
Loan agreement between the Company and Viewbix Ltd
On November 15, 2023, the Company (along with several lenders) signed a loan agreement with Viewbix Ltd., a wholly owned subsidiary of Viewbix Inc., in an aggregate amount of USD 480 thousand. The Company’s portion in this loan was USD 200 thousand. The loan bears an annual interest of 9%. The loan shall be repaid over the course of two years following January 1, 2024, whereby for the first twelve months following January 1, 2024, Viewbix Ltd. shall repay, on a quarterly basis, only the accrued interest on the loan principal and shall repay, on a quarterly basis, the outstanding loan amount in the second year. In the event that Viewbix Ltd. fails to repay a part or all of the loan amount, the Company shall be entitled, at its discretion, to convert the outstanding loan amount owed into Viewbix’s Ltd. common stock.
The loan between the Company and Viewbix Ltd. is eliminated in consolidation. The loan between Viewbix Ltd. and the other lenders in the amount of USD 234 thousand is accounted for as financial liability at amortized cost in the Group’s consolidated statements of financial position as of December 31, 2023.
In addition, and in connection with the loan agreement with Viewbix Ltd., Viewbix Inc. issued the Company and the other lenders 480,000 warrants (the Company’s portion was 200,000 warrants) to purchase shares of common stock of Viewbix Inc. The warrants are exercisable to 480,000 shares, at an exercise price of USD 0.5 per share and will expire and cease to be exercisable on December 31, 2025.
The liability in connection with the warrants issued to the Company is eliminated in consolidation. The liability in connection with the warrants issued to the other lenders in the amount of USD 23 thousand is accounted for as financial liability at fair value through profit or loss (FVTPL).
Stock Incentive Plan
On March 2, 2023, the Board of Directors of Viewbix approved the adoption of the 2023 stock incentive plan (the “2023 Plan”). The 2023 Plan permits the issuance of up to (i) 2,500,000 shares of Common Stock, plus (ii) an annual increase equal to the lesser of (A) 5% of Viewbix’s outstanding capital stock on the last day of the immediately preceding calendar year; and (B) such smaller amount as determined by the Board of Directors, provided that no more than 2,500,000 shares of common stock may be issued upon the exercise of incentive stock options. If any outstanding awards expire, are canceled or are forfeited, the underlying shares would be available for future grants under the 2023 Plan. As of the date of approval of the financial statements, Viewbix had reserved 2,500,000 shares of common stock for issuance under the 2023 Plan.
In connection with the adoption of the 2023 Plan, on March 7, 2023, Viewbix Inc. entered into certain intercompany reimbursement agreements with two of its subsidiaries, Viewbix Ltd. and Gix Media (the “Recharge Agreements”). The Recharge Agreements provide for the offer of awards under the 2023 Plan to service providers of Viewbix Ltd. and Gix Media (the “Affiliates”) under the 2023 Plan. Under the Recharge Agreements, the Affiliates will each bear the costs of awards granted to its service providers under the 2023 Plan and will reimburse Viewbix Inc. upon the issuance of shares of common stock pursuant to an award, for the costs of shares issued, but in any event not prior to the vesting of an award. The reimbursement amount shall be equal to the lower of (a) the book expense for such award as recorded on the financial statements of one of the respective Affiliates, determined and calculated according to U.S. GAAP, or any other financial reporting standard that may be applicable in the future, or (b) the fair value of the shares of common stock at the time of exercise of an option or at the time of vesting of an RSU, as applicable.
As of December 31, 2023, 51,020 stock-based awards were granted by Viewbix Inc. under the 2023 Plan and an expense of USD 174 thousand was recognized in the Group’s consolidated statements of income/loss and other comprehensive income/loss for the year ended December 31, 2023.
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 – INTEREST IN OTHER ENTITIES: (continued)
| G. | Zig Miami 54 |
On September 13, 2023, the Company signed an operating agreement with Zig Investment Group LLC (“Zig Investment Group”), a Florida limited liability company, pursuant to which they formed a company, under the name Zig Miami 54 LLC (“Zig Miami 54”), a Florida limited liability company. The purpose of Zig Miami 54 is to acquire, improve, renovate, develop, manage, sell and otherwise deal with a commercial property located in Miami, Florida. The rights of Zig Miami 54 are exercised by Zig Investment Group, and the business and affairs of Zig Miami 54 are managed under the direction of Zig Investment Group (the “Manager”).
Under the terms of the agreement, the Company invested an amount of USD 2,000 thousand (the “Initial Capital Contribution”) in consideration of 60% of the issued and outstanding share capital of Zig Miami 54. The remaining 40% were allocated, without consideration, to Zig Investment Group.
In addition, Zig Miami 54 is entitled to receive a loan from the seller of the property (“Seller Loan”) in the amount of up to USD 1,500 thousand which is secured by a first lien on the property.
Additionally, under the terms of the agreement, commencing upon completion of phase I of the renovation work, the Manager shall distribute net cash from operations, with respect to each calendar quarter, during the next succeeding calendar quarter, or more frequently as determined by the Manager. All distributions of net cash from operations and net cash from capital transactions shall be made as follows: (a) First, one hundred percent (100%) to repay all debts, regular operating expenses and obligations of Zig Miami 54, including the current periodic installments of principal and interest due on the Seller Loan; (b) Second, one hundred percent (100%) to the Company until the Company has received a return of one hundred percent (100%) of its Initial Capital Contribution; (c) Third, one hundred percent (100%) to Zig Investment Group to repay all cost overruns incurred by Zig Investment Group, if any, up to the maximum amount of USD 180 thousand; and (d) Thereafter, pro rata to the Company and Zig Investment Group in accordance with their percentage interests.
Moreover, upon such time that the Company has received a distribution of one hundred percent (100%) of its Initial Capital Contribution, the Manager shall cause Zig Miami 54 to redeem from the Company, without any further consent or action of the Company, fifty percent (50%) of the Company’s interests in Zig Miami 54, equaling a thirty percent (30%) percentage interest in Zig Miami 54 and to, thereafter, issue to Zig Investment Group, additional interests in Zig Miami 54 equaling a thirty percent (30%) interest in Zig Miami 54. Following such redemption and issuance, Zig Investment Group will hold a seventy percent (70%) interest in Zig Miami 54 and the Company will hold a thirty percent (30%) interest in Zig Miami 54.
The closing of the agreement was on December 15, 2023 (the “Closing”). Following the Closing, Zig Miami 54 acquired the commercial property for an aggregate amount of USD 2,250 thousand and received a Seller Loan in the amount of USD 1,350 thousand.
The Initial Capital Contribution includes a loan and an investment. The Initial Capital Contribution was first allocated to the loan based on its fair value at the date of the Closing in an amount of USD 1,545 thousand (the “Loan”) with the residual of the Initial Capital Contribution in an amount of USD 455 thousand allocated to the investment (“Investment Purchase Price”).
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XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 – INTEREST IN OTHER ENTITIES: (continued)
| G. | Zig Miami 54 (continued) |
The Loan is subsequently measured at fair value through profit or loss (FVTPL). As of December 31, 2023, the fair value of the Loan was equal to its fair value at the date of the Closing.
The Company did not obtain any substantive processes, assembled workforce, or employees capable of producing outputs in connection with the acquisition. Therefore, the transaction was accounted for as an asset acquisition, as the acquired assets did not meet the definition of a business as defined by IFRS 3, Business Combinations.
The Investment Purchase Price was fully allocated to the commercial property.
Additionally, the management of the Company assessed whether it has control over Zig Miami 54 in accordance with IFRS 10 and determined that it has significant influence over Zig Miami 54. As such, the investment was accounted for using the equity method in accordance with IAS 28.
The activity in the investment in Zig Miami 54 account was as follows:
| December 15, 2023 – December 31, 2023 |
||||
| USD in thousands |
||||
| Balance as of January 1, 2023 | ||||
| Investment Purchase Price | 455 | |||
| Loss for the period | (85 | ) | ||
| Balance as of December 31, 2023 | 370 | |||
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 – INTEREST IN OTHER ENTITIES: (continued)
| H. | Polyrizon |
Investment in shares and SAFE
Polyrizon is a private company engaged in developing biological gels designed to protect patients against biological threats and reduce the intrusion of allergens and viruses through the upper airways and eye cavities.
As of December 31, 2022, the Company held 37.03% of Polyrizon’s outstanding share capital and the investment is accounted for using the equity method.
In January and June 2022, Polyrizon entered into a Simple Agreement for Future Equity (“SAFEs”) with several investors for aggregate proceeds of USD 800 thousand, of which USD 314 thousand were invested by the Company. The SAFEs did not bear interest and had a maturity date of July 31, 2023.
The terms of the SAFEs provided that in the event an IPO is successfully completed prior to the maturity date, the SAFEs will be automatically converted into shares (or other securities sold in such IPO) based on the IPO share or unit price.
In all other instances, including equity fundings, liquidation of Polyrizon or the occurrence of a deemed liquidation transaction, as well as upon maturity of the SAFEs if no such events occurred prior to the SAFEs maturity dates, the SAFEs will be automatically converted into shares of Polyrizon, based on the fair value of the share discounted by 20%. The share price fair value to be used in the determination of the number of shares to be issued is the share price in such equity fundings or deemed liquidation transactions, the liquidation value of Polyrizon in a liquidation event, or the share price of Polyrizon in its most recent funding at the date of issuance of the SAFEs in the event of automatic conversion upon maturity.
The SAFEs investments were accounted for as financial assets at fair value through profit or loss (FVTPL). See note 5.
As of December 31, 2022, the fair value of the SAFEs was USD 302 thousand.
On June 20, 2023, the Company and other investors signed a share purchase agreement with Polyrizon in an amount of USD 450 thousand of which the Company invested USD 120 thousand in cash and USD 60 thousand in shares. As part of the share purchase agreement, the SAFEs were converted into 1,024,321 ordinary shares of Polyrizon, discounted by 20%.
On July 3, 2023, the Company issued 169,920 shares to Polyrizon following the share purchase agreement signed in June 2023.
As a result of the share purchase agreement and the conversion of the SAFEs, the Company’s holdings in Polyrizon increased to 40.22% of the issued and outstanding ordinary shares of Polyrizon. This increase was accounted for as an additional purchase, using the “step by step” method.
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 – INTEREST IN OTHER ENTITIES: (continued)
| H. | Polyrizon (continued) |
Investment in shares and SAFE (continued)
The table set forth below summarizes the allocation of the additional purchase price between tangible and intangible assets acquired and liabilities assumed:
| June 20, 2023 |
||||
| USD in thousands |
||||
| Cash consideration | 120 | |||
| Share consideration | 60 | |||
| Fair value of shares upon conversion of the SAFEs | 314 | |||
| Total consideration | 494 | |||
| Polyrizon equity as of June 20, 2023 | 245 | |||
| Group’s share in % | 3.19 | % | ||
| Group’s share | 8 | |||
| Excess to allocate | 486 | |||
| Excess purchase price to allocate to IPR&D, net of deferred taxes | 46 | |||
| Goodwill | 440 | |||
| Total | 486 | |||
On December 19, 2023, Polyrizon completed a finance round and raised USD 105 thousand from several investors. The Company did not participate in the finance round. As a result, the Company’s holdings in Polyrizon decreased to 38.76% of the issued and outstanding ordinary shares of Polyrizon.
The activity in the investment account of Polyrizon during the years ended December 31, 2023, and 2022, was as follows:
| For the year ended December 31, 2023 |
||||
| USD in thousands |
||||
| Balance as of January 1, 2023 | 214 | |||
| Loss for the year | (209 | ) | ||
| Additional purchase on June 20, 2023 | 180 | |||
| Conversion of SAFEs into shares | 314 | |||
| Balance as of December 31, 2023 | 499 | |||
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 – INTEREST IN OTHER ENTITIES: (continued)
| H. | Polyrizon (continued) |
Investment in shares and SAFE (continued)
| For the year ended December 31, 2022 |
||||
| USD in thousands |
||||
| Balance as of January 1, 2022 | 447 | |||
| Loss for the year | (233 | ) | ||
| Balance as of December 31, 2022 | 214 | |||
Investment in options
In July 2020, the Company was granted an option (the “Original Option”) to invest an additional amount of up to USD 1 million in consideration for 3,107,223 shares of Polyrizon. The Original Option was exercisable until the earlier of (i) April 23, 2023, or (ii) the consummation by Polyrizon of equity financing of at least USD 500 thousand based on a pre-money valuation of at least USD 10 million. The Original Option was terminated on April 23, 2023.
On December 15, 2021, the Company was granted a new option (the “Alternative Option”) to invest an amount of USD 2 million in Polyrizon at a price per share equal to 125% the price per share at Polyrizon’s IPO (as defined below). The Alternative option is exercisable for a period of 3 years following the closing of Polyrizon’s initial public offering (“Polyrizon’s IPO”). On November 21, 2023, the Company signed an amendment to the share purchase agreement according to which, the Alternative Option will be exercisable upon a completion of listing Polyrizon’s ordinary shares for trading on the NASDAQ, whether via an initial public offering, merger, or by any other, provided however, that such listing takes place on or prior to December 31, 2024.
The Alternative Option was calculated based on management’s expectations for the IPO scenario. As of December 31, 2023, the fair value of the Alternative Option was USD 105 thousand. See note 5.
Convertible loan agreement
On February 12, 2023, the Company and other lenders signed a convertible loan agreement with Polyrizon for an aggregate amount of USD 180 thousand, of which the Company lent USD 80 thousand. The loan bears a 4% annual interest rate. The loan will be automatically converted into shares in a case of securities issuance or a financing round of at least USD 500 thousand at a discount of 20%. The loan was accounted for as financial assets at fair value through profit or loss (FVTPL). As of December 31, 2023, the fair value of the loan was USD 78 thousand. See note 5.
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 – INTEREST IN OTHER ENTITIES: (continued)
| I. | Charging Robotics |
Charging Robotics is a company operating in the electric vehicle and wireless charging sector. Charging Robotics was formed as a wholly owned subsidiary of the Company on February 1, 2021.
During 2021 the Company invested an amount of USD 741 thousand in Charging Robotics.
On February 19, 2021, the Company entered into the venture agreement, with Mr. Amir Zaid and Mr. Weijian Zhou (the founders of Emuze Ltd., a privately held company that designs and develops electric mobility micro vehicles), and Charging Robotics (the “Venture Agreement”), under which the Company formed a venture, under the name Revoltz Ltd. (“Revoltz”), to develop and commercialize three modular electric vehicle (“EV”) micro mobility vehicles for urban individual use and “last mile” cargo delivery.
Under the terms of the Venture Agreement, the Company invested an amount of USD 250 thousand in consideration of 19,990 ordinary shares of Revoltz, representing 19.99% of Revoltz’s issued and outstanding share capital on a fully diluted basis. The Venture Agreement requires the Company to invest an additional USD 400 thousand in a second tranche, subject to Revoltz achieving certain post-closing milestones, for 37.5% of Revoltz’s issued and outstanding share capital. As of December 31, 2023, the milestones were not achieved, therefore no additional investments occurred. The investment in Revoltz was accounted for using the equity method. The additional investment requirement was accounted for as a derivative liability measured at fair value through profit or loss. As of December 31, 2023, the fair value of the derivative liability was concluded to be immaterial.
On July 28, 2022, Charging Robotics entered into a convertible loan agreement with Revoltz pursuant to which Charging Robotics was required to invest an amount of USD 60 thousand in Revoltz (the “Loan Principal Amount”). In addition, Charging Robotics is entitled to provide Revoltz an additional loan of up to USD 340 thousand, at its sole discretion upon Revoltz’ request (the “Additional Amount”, and together with the Loan Principal Amount, the “Total Loan Amount”). The Total Loan Amount shall carry interest at the minimum rate prescribed by Israeli law. The Loan Principal Amount was accounted for as a financial asset at fair value through profit or loss (FVTPL). The fair value of the loan as of December 31, 2023, was USD 62 thousand. See note 5.
The Total Loan Amount shall be converted into shares of Revoltz, upon the occurrence of any of the following events (each a “Trigger Event”):
| a. | The consummation of funding by Revoltz of an aggregate amount of USD 1 million at a pre-money Revoltz valuation of at least USD 7 million. |
| b. | Revoltz has generated an aggregate of USD 1 million or more in revenues. |
In the event that a Trigger Event has not occurred on or prior to the 24-month anniversary of the date on which the Loan Principal Amount was extended to Revoltz, the Loan shall be due and repayable by Revoltz to Charging Robotics.
On March 28, 2023, the Company signed a securities exchange agreement with Fuel Doctor to sell all its shares in Charging Robotics to Fuel Doctor. See note 4K.
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 – INTEREST IN OTHER ENTITIES: (continued)
| J. | SciSparc |
SciSparc is a company formed under the laws of the State of Israel. SciSparc listed its American Depository Shares on the OTCQB until December 7, 2021, after which SciSparc uplisted to NASDAQ.
Buffalo Investments Ltd. (“Buffalo”), an Israeli private company, owned 150,000 options to purchase 150,000 shares of SciSparc at an exercise price of USD 5.02 per share. On December 7, 2021, the Company entered into an option purchase agreement with Buffalo (the “Buffalo Agreement”) for the purchase of the 150,000 options in consideration for USD 0.72 per option. The Company paid USD 72 thousand in this transaction. Additionally, the Company was obligated to immediately exercise all such options into shares and the Company paid SciSparc an additional USD 753 thousand in this transaction. According to the Buffalo Agreement, Buffalo undertook to purchase 85% of the shares back from the Company within 3 months following the Buffalo Agreement (the “Purchase Period”) in consideration for USD 6.05 per share and for a total consideration of USD 771 thousand.
In April 2022, the Buffalo Agreement was amended such that the Company extended the Purchase Period until June 7, 2022.
On June 30, 2022, the Buffalo Agreement was amended such that the Company extended the Purchase Period until December 31, 2022, and Buffalo undertook to purchase 90% of the shares back from the Company in consideration for USD 6.05 per share and for a total consideration of USD 817 thousand.
As of December 31, 2022, the Company held 108,814 shares of SciSparc which represented 1.6% of SciSparc’s issued and outstanding share capital.
As of December 31, 2022, the Company treated the investment as a short-term forward contract such that the difference between the price in the forward transaction (USD 6.05 per share) and the quoted price will be recognized as an asset. As of December 31, 2022, the value of the shares’ investment was USD 82 thousand, and the value of the forward contract asset was USD 577 thousand. See note 5.
On January 25, 2023, the Company sold all its holdings in SciSparc on the NASDAQ.
On March 16, 2023, the Company signed an amendment to the Buffalo Agreement (the “Amendment”).
According to the Amendment, instead of purchasing 90% of the shares back from the Company for a total consideration of USD 817 thousand, which was originally agreed under the Buffalo Agreement, Buffalo will transfer to the Company, without any consideration, 309,000 shares of Hydreight Technologies Inc., 77,980 shares of Viewbix Inc., 84,000 shares of SciSparc, 36,000 shares of Clearmind Medicine Inc. and 31,250 shares of Colugo Systems Ltd. with an aggregate value of USD 937 thousand, reflecting a compensation of USD 120 thousand.
As a result, on March 16, 2023, the Company recorded an amount of USD 937 within other receivables and disposed the forward contract asset in the amount of USD 577 thousand. The difference between the value of the shares to be transferred under the Amendment (USD 937 thousand) and the value of the forward contract asset (USD 577 thousand) was recorded in profit and loss in the consolidated statement of income/loss and other comprehensive income/loss.
As of December 31, 2023, the Company received 84,000 shares of SciSparc, 307,000 shares of Hydreight Technologies Inc. and 36,000 shares of Clearmind Medicine Inc. The investments were accounted for as investments at fair value through profit or loss (FVTPL). See note 5.
The shares that have not been transferred as of December 31, 2023, were recorded within other receivables in the consolidated statements of financial position as of December 31, 2023, in an amount of USD 510 thousand representing their fair value. See note 5.
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 – INTEREST IN OTHER ENTITIES: (continued)
| K. | Fuel Doctor |
On December 21, 2021, the Company purchased 90,000,000 shares of Fuel Doctor, which represented 35.06% of the issued and outstanding shares of Fuel Doctor for a total consideration of USD 263 thousand. The Company gained a significant influence over Fuel Doctor and aforementioned the investment was accounted for using the equity method.
On March 28, 2023, the Company signed a securities exchange agreement with Fuel Doctor to sell all its shares in Charging Robotics to Fuel Doctor in exchange for 827,543,253 newly issued shares of Fuel Doctor’s common stock equal to 76.25% of the total number of shares of Fuel Doctor’s common stock issued and outstanding as of April 7, 2023 (the “Closing”) on a fully diluted basis. In the financial statements of Fuel Doctor, the share exchange was accounted for as a reverse acquisition where Fuel Doctor was identified as the accounting acquirer. The financial statements of Fuel Doctor are consolidated in these financial statements from the Closing date.
As of December 31, 2023, the Company held 67% of Fuel Doctor’s issued and outstanding share capital.
| L. | Parazero |
Share purchase agreement
Parazero is a company that specializes in the design, development, manufacturing, distribution and sales of safety systems for commercial drones. Parazero’s technology enables real-time identification of critical failures of drones, and upon detection of an emergency, a parachute is autonomously deployed in fractions of a second, thus ensuring safe landings at all times. Parazero sells its products internationally with a focus on the U.S. market.
On January 28, 2022, the Company and additional investors (the “Acquirers”), entered into a share purchase agreement with Delta drone International Ltd. (“Delta”), an Australian corporation (the “Seller”) to purchase 100% of Parazero’s share capital for a total consideration of AUD 6 million (USD 4,335 million) in cash (the “Consideration Amount”).
The Company purchased 674,362 of Parazero shares as part of this agreement for total consideration of AUD 2,235 thousand (USD 1,613 thousand), which represent 40.35% holdings of the issued and outstanding shares of Parazero. The investment was accounted for as an equity investment. During April 2022, the Consideration Amount was adjusted. As a result of this adjustment, the Company received USD 18 thousand.
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 – INTEREST IN OTHER ENTITIES: (continued)
| L. | Parazero (continued) |
Share purchase agreement (continued)
Purchase price allocation summary following a purchase of shares on February 2, 2022:
| February 2, 2022 |
||||
| USD in thousands |
||||
| Purchase price | 1,595 | |||
| Adjusted equity | (252 | ) | ||
| Excess to allocate | 1,847 | |||
| Excess purchase price to allocate to technology | 745 | |||
| Goodwill | 1,102 | |||
| Total | 1,847 | |||
On July 31, 2023, Parazero completed its initial public offering (“IPO”) on the NASDAQ for aggregated gross proceeds of approximately USD 7.8 million before deducting underwriting discounts and other estimated offering expenses. The Company participated in the IPO in an amount of USD 1.5 million and converted all of the SAFEs into ordinary shares. Following the IPO and the conversion of the SAFEs, the Company’s holdings in Parazero decreased to 33.36%. As a result, the Company recognized a gain of USD 466 thousand withing equity losses in the consolidated statements of income/loss and other comprehensive income/loss for the year ended December 31, 2023.
On October 30, 2023, Parazero completed a private placement of USD 5.1 million. The Company did not participate in this private placement and the Company’s holdings in Parazero decreased to 20.04% and starting from that date the investment was accounted for as investment at fair value through profit or loss (FVTPL). See note 5. As a result of the transition, the Company recognized a gain of USD 714 thousand in the consolidated statements of income/loss and other comprehensive income/loss.
As of December 31, 2023, the Company held 20.04% of the issued and outstanding share capital of Parazero.
Activity in investment account:
January 1, |
||||
| USD in thousands |
||||
| Investment as of January 1, 2023 | 976 | |||
| Additional investment on July 31, 2023 | 1,575 | |||
| Conversion of SAFEs into shares | 651 | |||
| Loss for the period | (544 | ) | ||
| Balance as of October 30, 2023 | 2,658 | |||
| Gain as a result of transition to FVTPL | 714 | |||
| Fair value of the investment as of October 30, 2023 | 3,372 | |||
| February 2, 2022- December 31, 2022 |
||||
| USD in thousands |
||||
| Balance as of February 2, 2022 | 1,595 | |||
| Loss for the period | (619 | ) | ||
| Balance as of December 31, 2022 | 976 | |||
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 – INTEREST IN OTHER ENTITIES: (continued)
| L. | Parazero (continued) |
SAFE investments
In February, March and May 2022, Parazero entered into several SAFEs under which Parazero received USD 1,500 thousand. The Company invested USD 521 thousand through these SAFEs.
The Company’s investments in Parazero SAFEs were accounted for as financial assets at fair value through profit or loss (FVTPL). The Company concluded that there were no material differences between the cost and the fair value of the SAFEs.
On July 31, 2023, Parazero completed an Initial Public Offering (“IPO”) on the NASDAQ. Upon completion of the IPO, the SAFEs were converted into 173,836 shares.
Credit facility agreement
On October 30, 2022, the Company signed a credit facility agreement with Parazero in the aggregated amount of up to USD 625 thousand. The credit facility agreement does not bear interest and will be repaid on the earlier of: (i) first anniversary date (ii) the closing of an IPO (iii) default event. The credit facility was accounted for as financial assets measured at amortized cost.
In June 2023, the Company signed an amendment to the credit facility agreement for an additional USD 125 thousand.
Following the completion of the IPO on July 31, 2023, the credit facility was fully repaid.
Management agreement with the Company
On October 30, 2022, the Company signed a service agreement with Parazero, effective upon completion of the IPO on July 31, 2023.
According to the service agreement, Parazero will pay the Company a monthly fee of USD 10 thousand for business development and ongoing consulting services. During the year ended December 31, 2023, the Company recognized an income of USD 50 thousand within other income in the consolidated statements of income/loss and other comprehensive income/loss.
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 – INTEREST IN OTHER ENTITIES: (continued)
| M. | Laminera |
As of December 31, 2021, the Company held 11.18% of the issued and outstanding shares of Laminera. The investment was accounted for as investment at fair value through profit or loss (FVTPL).
On March 31, 2022 (the “Closing”), the Company and a group of investors (each an “Investor”) entered into a share purchase agreement with Laminera (“Laminera Agreement”). The Company participated in this financing round and invested USD 300 thousand in cash and issued 324,675 shares of the Company, which their fair value at the time of the Closing was USD 400 thousand. As a result, the Company’s holdings in Laminera increased to 19.7% and as of such date the investment was accounted for using the equity method.
Purchase price allocation summary following a purchase of shares on March 31, 2022:
| March 31, 2022 |
||||
| USD in thousands |
||||
| Cash consideration | 300 | |||
| Share consideration | 400 | |||
| Fair value of former holdings | 633 | |||
| Total consideration | 1,333 | |||
| Adjusted equity | (164 | ) | ||
| Excess to allocate | 1,169 | |||
| Excess purchase price to allocate to IPR&D, net of deferred taxes | 273 | |||
| Goodwill | 896 | |||
| Total | 1,169 | |||
In addition, pursuant to the terms of the Laminera Agreement, in the event that Laminera issues new securities on one or more occasions, during the period of 24 months from the Closing, without consideration or for a consideration per share of less than the price per share in this agreement, then on each such issuance of new securities Laminera shall issue to each Investor additional ordinary shares, at no cost to the Investor (the “March 2022 Anti-Dilution Protection”). The March 2022 Anti-Dilution Protection is measured at fair value through profit or loss. As of December 31, 2023, the fair value of the March 2022 Anti-Dilution Protection was estimated to be inconsequential.
On August 10, 2022, the Company signed a bridge loan agreement with Laminera in the amount of USD 100 thousand. The loan will bear an annual interest of 8% and will be repaid no later than September 1, 2024. The loan repayment will be accelerated earlier in the event of closing of an equity financing round or rights offering, an IPO or a default event as described in the bridge loan agreement. The loan was accounted for as financial assets measured at amortized cost.
Management of the Company assessed whether there is objective evidence that its net investment in Laminera was impaired. As Leminara continues to have zero revenues and generate operating losses, and as the Company does not plan additional investments in Laminera, the Company considered the value of the investment as of December 31, 2023. As the Company does not believe this investment will generate any cash flows in the foreseeable future, the Company decided to write off the entire amount of the investment in Laminera and recorded an impairment loss of USD 1,176 thousand within equity losses in the consolidated statements of income/loss and other comprehensive income/loss for the year ended December 31, 2023.
In addition, the Company decided to write off the entire amount of the loan and recognized a loss in the amount of USD 90 thousand withing the consolidated statements of income/loss and other comprehensive income/loss for the year ended December 31, 2023.
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 – INTEREST IN OTHER ENTITIES: (continued)
| M. | Laminera (continued) |
Activity in investment account:
| January 1, 2023 - December 31, 2023 |
||||
| USD in thousands |
||||
| Balance as of January 1, 2023 | 1,176 | |||
| Loss for the year | (1,176 | ) | ||
| Balance as of December 31, 2023 | ||||
| March 31, 2022- December 31, 2022 |
||||
| USD in thousands |
||||
| Balance as of March 31, 2022 | 1,333 | |||
| Loss for the period | (157 | ) | ||
| Balance as of December 31, 2022 | 1,176 | |||
Reconciliation to carrying amounts:
| December 31, 2022 |
||||
| USD in thousands |
||||
| Equity attributable to Laminera shareholders’ as of December 31, 2022 | 481 | |||
| Adjustments to equity | (339 | ) | ||
| Equity as adjusted as of December 31,2022 | 142 | |||
| Groups share in % | 19.70 | % | ||
| Group share | 28 | |||
| Balance of excess cost: | ||||
| IPR&D | 252 | |||
| Goodwill | 896 | |||
| Balance as of December 31, 2022 | 1,176 | |||
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 – INTEREST IN OTHER ENTITIES: (continued)
| N. | GERD IP |
GERD IP was incorporated under the laws of the State of Delaware on January 13, 2020. GERD IP is in the business of holding and licensing patents that serves as the foundation of a device used to perform a minimally invasive, trans-oral fundoplication surgical procedure for the treatment of patients suffering from gastroesophageal reflux disease.
On May 11, 2021, GERD IP signed a confidential settlement agreement to resolve a lawsuit, concerning alleged infringement of its intellectual property, filed by GERD IP in July 2020 with the United States District Court for the District of Delaware against a US medical device company.
The claim for alleged intellectual property infringement referred to two patents issued by the United States Patent and Trademark Office, owned by GERD IP.
During 2021 and 2022, GERD IP received USD 1.3 million compensation related to this settlement agreement, and after reduction of legal cost the net amount received summed up to USD 631 thousand.
| O. | Metagramm |
On April 13, 2023, the Company entered into a share purchase agreement to acquire 19.9% of Metagramm, an AI, machine learning (ML) communication and grammar assistant software. In return, the Company paid Metagramm USD 250 thousand in Company’s shares. The investment was accounted for as investments at fair value through profit or loss (FVTPL). See note 5.
As of December 31, 2023, the Company held 19.9% of the issued and outstanding shares of Metagramm.
In addition, pursuant to the share purchase agreement, the Company loaned Metagramm USD 250 thousand in order to fund a pilot. The loan bears 6% annual interest. The loan will be repaid upon the completion of the pilot, in eight quarterly installments starting from the first day of the third year after the grant date. The loan was accounted for as financial assets measured at amortized cost.
In the event that the pilot approval is not successfully completed within 15 months after the Closing, Metagramm will repay the loan and any interest on a monthly basis. In this case, the Company will have the option to receive additional shares of Metagramm, at no cost, in such number that immediately after, the Company’s holdings in Metagramm will increase to 31.25%. The option is measured at fair value through profit or loss. As of December 31, 2023, the fair value of the option was estimated to be inconsequential.
In addition, in the event of any fundraising transaction, the Company will have the option to be reimbursed the full loan amount with accrued interest immediately following the fundraising transaction or to convert the loan into Metagramm’s shares at a 20% discount.
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 – INTEREST IN OTHER ENTITIES: (continued)
| P. | A.I Conversation Systems |
On August 23, 2022, the Company signed a convertible loan agreement with A.I Artificial Intelligence Research and Development Ltd. (A.I R&D) for the assignment of a loan it has given to A.I Conversation Systems, a public company traded in Tel Aviv. The original loan amount was NIS 6,000 thousand (USD 1,800 thousand). According to the agreement, the Company purchased from A.I R&D 50% from the original loan in exchange for USD 914 thousand (NIS 3,000 thousand) in the same terms of the original loan given to A.I Conversation Systems.
According to the agreement, the loan will bear an interest of 1% per month. Additionally, A.I Conversation Systems has the right to choose to repay the loan and interest in cash or to convert it into shares of A.I Conversation Systems on March 13, 2023. Under the conversion option, the number of shares will be equal to the loan (NIS 3,000 thousand) plus NIS 1,750 thousand (USD 1,300 thousand) divided by the average quoted price per share of A.I Conversation Systems during a period of 30 trading days preceding the conversion decision.
The loan was accounted for as financial assets measured at fair value through profit or loss (see note 5). As of December 31, 2022, the Company estimated the fair value of the loan at USD 940 thousand (NIS 3,307 thousand). On March 12, 2023, the Company entered into an amendment to the conversion loan agreement. According to the amendment, the repayment will be postponed by 3 months, to June 13, 2023.
On February 16, 2023, the Company purchased 118,400 shares of A.I Conversation Systems for a total of USD 84 thousand (NIS 296 thousand). The investment was accounted for as investment at fair value through profit or loss.
On June 13, 2023, the Board of Directors of A.I Conversation Systems approved the conversion of the loan into shares, subject to the approval of the shareholders of A.I Conversation Systems at the general meeting of the shareholders (the “General Meeting”). As such, the number of shares to be issued to the Company determined to be 2,650,423 shares which equals NIS 4,750 thousand divided by the average quoted price per share of A.I Conversation Systems during a period of 30 trading days preceding June 13, 2023. The decision of the Board of Directors was subject to the approval of at the General Meeting.
On September 5, 2023, the loan conversation was approved during the General Meeting. As a result, the loan was converted into 2,650,423 shares of A.I Conversation Systems which represented 36.08% holdings of the issued and outstanding shares of A.I Conversation Systems and as of this date, the investment was accounted for using the equity method. The fair value of the loan as of September 5, 2023, was USD 721 thousand (NIS 2,748 thousand).
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 – INTEREST IN OTHER ENTITIES: (continued)
| P. | A.I Conversation Systems (continued) |
Purchase price allocation summary following the loan conversion on September 5, 2023:
| September 5, 2023 |
||||
| USD in thousands |
||||
| Fair value of converted shares as of September 5, 2023 | 721 | |||
| Fair value of former holdings | 43 | |||
| Total consideration | 764 | |||
| Adjusted equity | 649 | |||
| Group’s share in % | 36.08 | % | ||
| Group’s share | 234 | |||
| Excess to allocate | 530 | |||
The Company did not obtain any substantive processes, assembled workforce, or employees capable of producing outputs in connection with the acquisition. Therefore, the transaction was accounted for as an asset acquisition, as the acquired assets did not meet the definition of a business as defined by IFRS 3, Business Combinations.
As of the acquisition date, A.I Conversation Systems had no active business operations. As such, the excess purchase price in the amount of USD 530 thousand was recognized as an expense in the consolidated statements of income/loss and other comprehensive income/loss under amortization of excess purchase price of associates.
The activity in the investment account of A.I Conversation Systems was as follows:
| September 5, 2023 - December 31, 2023 |
||||
| USD in thousands |
||||
| Balance as of September 5, 2023 | 234 | |||
| Loss for the period | (158 | ) | ||
| Balance as of December 31, 2023 | 76 | |||
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 – FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT:
| 1) | Financial risk factors |
The Group is exposed to a variety of financial risks such as: market risks, credit risks and liquidity risks. The Group’s overall risk management plan focuses on the unpredictability of financial markets and seeks to minimize the potential adverse effects on the Group’s financial performance.
Risk management is performed by the finance department according to the policy authorized by the board of directors.
| a) | Market risk - Currency risk |
Currency risk is the risk that the value of financial instruments will fluctuate due to changes in foreign exchange rates.
The Group operates internationally and is exposed to foreign exchange risks due to exposure to Foreign Currencies, primarily the NIS. Foreign exchange risk arises from future commercial transactions, assets or liabilities denominated in foreign currency.
The Group’s policy to reduce the exposure to changes in exchange rates is based on maintaining, where possible, the balances of current monetary assets, according to the currency of the current liabilities.
As of December 31, 2023, and 2022, if the Group’s functional (USD) had weakened/strengthened by 10% against the NIS, with all other variables held constant, the loss for the year would decrease/increase by USD 120 thousand and USD 600 thousand, accordingly.
| b) | Credit risk |
Credit risk arises when a failure by counterparties to discharge their obligations could reduce the amount of future cash inflows from financial assets on hand at the end of the reporting year.
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 – FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT: (continued)
| 1) | Financial risk factors (continued) |
| b) | Credit risk (continued) |
Credit risks are treated at the Group level. Credit risks arise typically from cash and cash equivalents, bank deposits and from credit exposures in connection with outstanding receivables and committed transactions.
No credit limits were exceeded during the reported periods and Group’s management does not expect any losses from non-performance of these parties.
| c) | Liquidity risk |
Liquidity risk exists where the Group might encounter difficulties in meeting its financial obligations as they become due. The Group monitors its liquidity in order to ensure that sufficient liquid resources are available to allow it to meet its obligations.
Cash flow forecasting is performed by the Group’s finance department of each of the companies in the Group. The finance department monitors rolling forecasts of the Group’s liquidity requirements to ensure that it has sufficient cash to meet operational needs, while maintaining sufficient headroom on its undrawn committed borrowing facilities, so that the Group does not breach any of its credit facilities. As of December 31, 2023, Gix Media did not meet the financial covenants on its long-term loans. As a result, these loans were reclassified to current liabilities. For more information, see note 4F above.
The following tables detail the Group’s remaining contractual maturity for its non-derivative financial liabilities with agreed repayment periods:
| Less than 1 year | 1 – 2 years | 2-3 years | 3-5 years | Total | ||||||||||||||||
| USD in thousands | ||||||||||||||||||||
| December 31, 2023 | ||||||||||||||||||||
| Trade accounts payable | 13,248 | 13,248 | ||||||||||||||||||
| Short term loans | 8,982 | 8,982 | ||||||||||||||||||
| Long term loans | 234 | 234 | ||||||||||||||||||
| Liability to event producers | 967 | 967 | ||||||||||||||||||
| Accrued expenses and other current liabilities | 3,200 | 3,200 | ||||||||||||||||||
| Lease liabilities | 102 | 162 | 143 | 163 | 570 | |||||||||||||||
| 26,499 | 396 | 143 | 163 | 27,201 | ||||||||||||||||
| December 31, 2022 | ||||||||||||||||||||
| Trade accounts payable | 20,421 | 20,421 | ||||||||||||||||||
| Short term loans | 5,111 | 5,111 | ||||||||||||||||||
| Long term loans | 1,500 | 1,500 | 1,381 | 4,381 | ||||||||||||||||
| Liability to event producers | 1,654 | 1,654 | ||||||||||||||||||
| Accrued expenses and other current liabilities | 3,148 | 3,148 | ||||||||||||||||||
| Lease liabilities | 148 | 148 | 133 | 214 | 643 | |||||||||||||||
| 31,982 | 1,648 | 1,514 | 214 | 35,358 | ||||||||||||||||
| 2) | Estimates of fair value |
Below is an analysis of the financial instruments carried at fair value, by valuation method. The different levels have been defined as follows:
| ● | Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1). |
| ● | Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 3). |
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 – FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT: (continued)
| 2) | Estimates of fair value (continued) |
Financial assets
| A. | The following table presents the level 1 and level 3 fair value financial assets – investments in shares, warrants and SAFEs as of December 31, 2023, and December 31, 2022 |
| December 31, 2023 | December 31, 2022 | |||||||||||||||||||||||
| Level 1 | Level 3 | Total | Level 1 | Level 3 | Total | |||||||||||||||||||
| USD in thousands | ||||||||||||||||||||||||
| Safe Foods Inc. shares | 4 | 4 | 10 | 10 | ||||||||||||||||||||
| Maris-Tech Ltd. shares | 107 | 107 | 84 | 84 | ||||||||||||||||||||
| Maris-Tech Ltd. warrants | 12 | 12 | 13 | 13 | ||||||||||||||||||||
| Tondo Smart Ltd. shares | 106 | 106 | 97 | 97 | ||||||||||||||||||||
| Safee shares | 400 | 400 | 400 | 400 | ||||||||||||||||||||
| SciSparc shares (notes 4E and 4J) | 83 | 83 | 659 | 659 | ||||||||||||||||||||
| Polyrizon warrants (note 4H) | 105 | 105 | 399 | 399 | ||||||||||||||||||||
| Polyrizon SAFEs (note 4H) | 302 | 302 | ||||||||||||||||||||||
| Elbit Imaging Ltd. shares | 468 | 468 | 613 | 613 | ||||||||||||||||||||
| Hydreight Technologies Inc. shares (note 4J) | 104 | 104 | ||||||||||||||||||||||
| Clearmind Medicine Inc. warrants | 3 | 3 | 4 | 4 | ||||||||||||||||||||
| Clearmind Medicine Inc. shares | 21 | 21 | 594 | 594 | ||||||||||||||||||||
| Metagramm shares (note 4O) | 250 | 250 | ||||||||||||||||||||||
| Colugo Systems Ltd. shares | 400 | 400 | 400 | 400 | ||||||||||||||||||||
| Parazero SAFEs (note 4L) | 520 | 520 | ||||||||||||||||||||||
| Bubbles Intergroup Ltd. shares | 98 | 98 | 151 | 151 | ||||||||||||||||||||
| Automax Ltd. warrants | 6 | 6 | 9 | 9 | ||||||||||||||||||||
| Automax Ltd. shares | 324 | 324 | 1,114 | 1,114 | ||||||||||||||||||||
| Elbit Medical Technologies Ltd. shares | 12 | 12 | ||||||||||||||||||||||
| Parazero shares (note 4L) | 1,436 | 1,436 | ||||||||||||||||||||||
| Total | 2,769 | 1,170 | 3,939 | 3,331 | 2,038 | 5,369 | ||||||||||||||||||
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 – FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT: (continued)
| 2) | Estimates of fair value (continued) |
Financial assets (continued)
| B. | The following table presents the level 1 and level 3 fair value financial assets – loans to associates and others as of December 31, 2023, and December 31, 2022 |
| December 31, 2023 | December 31, 2022 | |||||||||||||||||||||||
| Level 1 | Level 3 | Total | Level 1 | Level 3 | Total | |||||||||||||||||||
| USD in thousands | ||||||||||||||||||||||||
| Loan to Revoltz (note 4I) | - | 62 | 62 | 62 | 62 | |||||||||||||||||||
| Loan to Polyrizon (note 4H) | 78 | 78 | ||||||||||||||||||||||
| Loan to A.I Conversation Systems (note 4P) | 940 | 940 | ||||||||||||||||||||||
| Loan to Zig Miami 54 (note 4G) | 1,545 | 1,545 | ||||||||||||||||||||||
| Total | 1,685 | 1,685 | 1,002 | 1,002 | ||||||||||||||||||||
| C. | The following table presents the level 1 and level 3 fair value financial assets included in other receivables as of December 31, 2023, and December 31, 2022 |
| December 31, 2023 | December 31, 2022 | |||||||||||||||||||||||
| Level 1 | Level 3 | Total | Level 1 | Level 3 | Total | |||||||||||||||||||
| USD in thousands | ||||||||||||||||||||||||
| Shares receivable from the Amendment of the Buffalo Agreement (note 4J) | 10 | 500 | 510 | |||||||||||||||||||||
| Total | 10 | 500 | 510 | |||||||||||||||||||||
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 – FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT: (continued)
| 2) | Estimates of fair value (continued) |
Financial assets (continued)
| D. | The following table presents the Level 1 financial assets – investments in shares and warrants roll-forward during the years ended December 31, 2023 and 2022: |
| Safe Foods Inc shares |
Tondo Smart Ltd shares |
A.I |
Bubbles Intergroup Ltd. shares |
Hydreight Technologies Inc shares |
SciSparc |
Maris-Tech Ltd. shares |
Automax Ltd. warrants |
Odysight.ai |
Clearmind Medicine Inc. shares |
Elbit Imaging Ltd. shares |
Automax Ltd. shares |
Parazero |
Elbit
Medical |
Total |
||||||||||||||||||||||||||||||||||||||||||||||
| USD in thousands | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of January 1, 2022 | 53 | 429 | - | - | - | 911 | - | - | - | - | - | 1,676 | - | 3,069 | ||||||||||||||||||||||||||||||||||||||||||||||
| Purchase of securities | - | - | 75 | 306 | - | 32 | 75 | 69 | - | 1,512 | - | 214 | - | - | 2,283 | |||||||||||||||||||||||||||||||||||||||||||||
| Transfer from equity method | - | - | - | - | - | - | - | - | - | - | 830 | - | - | - | 830 | |||||||||||||||||||||||||||||||||||||||||||||
| Transfer from Level 3 to Level 1 | - | - | - | - | - | - | 247 | - | - | 291 | - | - | - | - | 538 | |||||||||||||||||||||||||||||||||||||||||||||
| Net changes at fair value recognized through profit or loss | (43 | ) | (55 | ) | - | (155 | ) | - | (15 | ) | (238 | ) | (1 | ) | - | (1,209 | ) | (217 | ) | (776 | ) | - | - | (2,709 | ) | |||||||||||||||||||||||||||||||||||
| Sale of securities | - | (344 | ) | (103 | ) | - | - | (46 | ) | - | (60 | ) | - | - | - | - | - | - | (553 | ) | ||||||||||||||||||||||||||||||||||||||||
| Realized gain (loss) | - | 67 | 28 | - | - | (223 | ) | - | 1 | - | - | - | - | - | - | (127 | ) | |||||||||||||||||||||||||||||||||||||||||||
| Balance as of January 1, 2023 | 10 | 97 | - | 151 | - | 659 | 84 | 9 | - | 594 | 613 | 1,114 | - | - | 3,331 | |||||||||||||||||||||||||||||||||||||||||||||
| Purchase of securities | - | - | 83 | - | 141 | 336 | - | - | - | 3 | - | - | - | 20 | 583 | |||||||||||||||||||||||||||||||||||||||||||||
| Transfer from (to) equity method | - | - | (43 | ) | - | - | - | - | - | 5,774 | - | - | - | 3,372 | - | 9,103 | ||||||||||||||||||||||||||||||||||||||||||||
| Net changes at fair value recognized through profit or loss | (6 | ) | 9 | (40 | ) | (53 | ) | (37 | ) | 133 | 23 | (3 | ) | - | (576 | ) | 75 | (790 | ) | (1,936 | ) | (8 | ) | (3,209 | ) | |||||||||||||||||||||||||||||||||||
| Sale of securities | - | - | - | - | - | (1,045 | ) | - | - | (5,774 | ) | - | (220 | ) | - | - | - | (7,039 | ) | |||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2023 | 4 | 106 | - | 98 | 104 | 83 | 107 | 6 | - | 21 | 468 | 324 | 1,436 | 12 | 2,769 | |||||||||||||||||||||||||||||||||||||||||||||
| (*) | For more information, see note 4C. |
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 – FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT: (continued)
| 2) | Estimates of fair value (continued) |
Financial assets (continued)
| E. | The following table presents the Level 3 financial assets – investments in shares, warrants and SAFEs roll-forward during the years ended December 31, 2023 and 2022: |
| Maris- Tech Ltd. shares and warrants |
Polyrizon warrants |
Laminera shares |
Gix
Internet anti-dilution |
Safe
Foods Inc. warrants |
Clearmind Medicine Inc. warrants |
Clearmind Medicine Inc. anti-dilution |
Safee shares |
Parazero SAFEs |
Polyrizon SAFEs |
Colugo Systems Ltd. shares |
Metagramm shares |
Total | ||||||||||||||||||||||||||||||||||||||||
| USD in thousands | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of January 1, 2022 | 303 | 516 | 126 | 469 | 34 | - | - | 400 | - | - | - | - | 1,848 | |||||||||||||||||||||||||||||||||||||||
| Purchase of securities | 25 | - | - | - | - | 197 | 40 | - | 520 | 314 | 400 | - | 1,496 | |||||||||||||||||||||||||||||||||||||||
| Transfer to equity method | - | - | (633 | ) | - | - | - | - | - | - | - | - | (633 | ) | ||||||||||||||||||||||||||||||||||||||
| Transfer from Level 3 to Level 1 | (247 | ) | - | - | - | - | - | (299 | ) | - | - | - | - | - | (546 | ) | ||||||||||||||||||||||||||||||||||||
| Net changes at fair value recognized through profit or loss | (68 | ) | (117 | ) | 507 | (469 | ) | (34 | ) | (193 | ) | 259 | - | - | (12 | ) | - | - | (127 | ) | ||||||||||||||||||||||||||||||||
| Balance as of January 1, 2023 | 13 | 399 | - | - | - | 4 | - | 400 | 520 | 302 | 400 | - | 2,038 | |||||||||||||||||||||||||||||||||||||||
| Purchase of securities | - | - | - | - | - | - | - | - | - | - | - | 250 | 250 | |||||||||||||||||||||||||||||||||||||||
| Net changes at fair value recognized through profit or loss | (1 | ) | (294 | ) | - | - | - | (1 | ) | - | - | 130 | 12 | - | - | (154 | ) | |||||||||||||||||||||||||||||||||||
| SAFEs conversion | - | - | - | - | - | - | - | - | (650 | ) | (314 | ) | - | - | (964 | ) | ||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2023 | 12 | 105 | - | - | - | 3 | - | 400 | - | - | 400 | 250 | 1,170 | |||||||||||||||||||||||||||||||||||||||
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 – FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT: (continued)
| 2) | Estimates of fair value (continued) |
Financial assets (continued)
| F. | The following table presents the Level 3 financial assets – loans to associates and others roll-forward during the years ended December 31, 2023 and 2022: |
| Loan to Revoltz |
Loan to A.I Conversations Systems |
Loan to Polyrizon |
Loan to Zig Miami 54 |
Total | ||||||||||||||||
| USD in thousands | ||||||||||||||||||||
| Balance as of January 1, 2022 | 60 | 60 | ||||||||||||||||||
| Loans granted to associates and others | 853 | 853 | ||||||||||||||||||
| Net changes at fair value recognized through profit or loss | 2 | 87 | 89 | |||||||||||||||||
| Balance as of January 1, 2023 | 62 | 940 | 1,002 | |||||||||||||||||
| Loans granted to associates and others | 80 | 1,545 | 1,625 | |||||||||||||||||
| Net changes at fair value recognized through profit or loss | (219 | ) | (2 | ) | (221 | ) | ||||||||||||||
| Loan conversion (see note 4P) | (721 | ) | (721 | ) | ||||||||||||||||
| Balance as of December 31, 2023 | 62 | 78 | 1,545 | 1,685 | ||||||||||||||||
| G. | The following table presents the level 1 and level 3 fair value financial assets included in other receivables roll-forward during the year ended December 31, 2023: |
| Shares receivable | Total | |||||||
| USD in thousands | ||||||||
| Balance as of January 1, 2023 | ||||||||
| Shares receivable from the Amendment of the Buffalo Agreement | 937 | 937 | ||||||
| Transfer to investments in shares | (181 | ) | (181 | ) | ||||
| Net changes at fair value recognized through profit or loss | (246 | ) | (246 | ) | ||||
| Balance as of December 31, 2023 | 510 | 510 | ||||||
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 – FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT: (continued)
| 2) | Estimates of fair value (continued) |
Financial liabilities
Level 1 financial liabilities:
As of December 31, 2022, the Group had a financial liability measured at level 1 – Warrants C (see note 14b).
The fair value of financial instruments traded in active markets is based on quoted market prices at the statement of financial position date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis.
On July 19, 2023, the Warrants C expired and were removed from the trading list.
Level 3 financial liabilities:
As of December 31, 2023, and December 31, 2022, the Group has financial liabilities measured at level 3 – mainly from derivative liabilities of Jeffs’ Brands (see note 4E).
The fair value of the derivative liabilities of Jeffs’ Brands as of December 31, 2023, was calculated using the following unobservable inputs: share price: USD 3.05, expected volatility: 101.39%, exercise price: USD 14.14, risk-free interest rate: 3.93%, expected life: 3.91 years, weighted average cost of capital (WACC): 20.4%.
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 – FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT: (continued)
| 2) | Estimates of fair value (continued) |
Financial liabilities (continued)
| H. | The following table presents the financial liabilities that were measured at fair value through profit or loss: |
| December 31, | December 31, | |||||||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||||||
| Level 1 | Level 3 | Total | Level 1 | Level 3 | Total | |||||||||||||||||||
| USD in thousands | USD in thousands | |||||||||||||||||||||||
| Fair value of warrants | 1,874 | 1,874 | 396 | 4,159 | 4,555 | |||||||||||||||||||
| I. | The following table presents the Level 1 financial liabilities roll-forward during 2023 and 2022: |
| USD in thousands |
||||
| Balance as of January 1, 2023 | 396 | |||
| Change in fair value of warrants issued to investors | (396 | ) | ||
| Balance as of December 31, 2023 | ||||
| USD in thousands |
||||
| Opening balance as of January 1, 2022 | 555 | |||
| Changes in fair value of warrants | (159 | ) | ||
| Closing balance as of December 31, 2022 | 396 | |||
| J. | The following table presents the Level 3 financial liabilities roll-forward during 2023 and 2022: |
| USD in thousands |
||||
| Balance as of January 1, 2023 | 4,159 | |||
| Change in fair value of warrants issued in connection with the IPO of Jeffs’ Brands | (2,285 | ) | ||
| Balance as of December 31, 2023 | 1,874 | |||
The following table presents the Level 3 financial liabilities roll-forward during 2022:
| USD in thousands |
||||
| Opening balance as of January 1, 2022 | 137 | |||
| Issuance of warrants in connection with the IPO of Jeffs’ Brands (note 4E) | 7,640 | |||
| Changes in fair value of warrants issued in connection with the IPO of Jeffs’ Brands | (3,490 | ) | ||
| Changes in fair value of warrants issued to lenders of Jeffs’ Brands upon IPO | (128 | ) | ||
| Closing balance as of December 31, 2022 | 4,159 | |||
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 – CASH AND CASH EQUIVALENTS, SHORT TERM DEPOSITS AND RESTRICTED CASH:
| December 31 | ||||||||
| 2023 | 2022 | |||||||
| USD in thousands | ||||||||
| Cash and cash equivalents | 9,357 | 20,065 | ||||||
| Short term deposits | 12 | 859 | ||||||
| Restricted cash | 166 | 185 | ||||||
| 9,535 | 21,109 | |||||||
The currencies in which the cash and cash equivalents, short term deposits and restricted cash are denominated or to which they are linked are as follows:
| December 31 | ||||||||
| 2023 | 2022 | |||||||
| USD in thousands | ||||||||
| USD | 7,814 | 14,680 | ||||||
| NIS | 1,510 | 6,428 | ||||||
| GBP | 167 | |||||||
| Other currencies | 44 | 1 | ||||||
| 9,535 | 21,109 | |||||||
As of December 31, 2023, and 2022, the carrying amount of cash and cash equivalents, short term deposits and restricted cash approximated their fair value.
NOTE 7 – OTHER RECEIVABLES AND LOANS TO OTHERS:
| a. | Other receivables – composition: |
| December 31 | ||||||||
| 2023 | 2022 | |||||||
| USD in thousands | ||||||||
| Government institutions | 685 | 924 | ||||||
| Prepaid expenses | 940 | 469 | ||||||
| Advances to suppliers | 417 | |||||||
Shares receivable from the Amendment of the Buffalo Agreement (see note 4J) |
510 | |||||||
| Other | 9 | 118 | ||||||
| 2,144 | 1,928 | |||||||
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 – OTHER RECEIVABLES AND LOANS TO OTHERS: (continued)
| b. | Loans to others – composition: |
| December 31 | ||||||||
| 2023 | 2022 | |||||||
| USD in thousands | ||||||||
| Loan to Safee (note 4D) | 126 | 71 | ||||||
| Loan to Metagramm (note 4O) | 250 | |||||||
| Loan to A.I Conversation Systems (note 4P) | 940 | |||||||
| 376 | 1,011 | |||||||
NOTE 8 – INVENTORY:
| December 31 | ||||||||
| 2023 | 2022 | |||||||
| USD in thousands | ||||||||
| Goods in transit | 219 | 8 | ||||||
| Finished goods | 2,167 | 1,783 | ||||||
| 2,386 | 1,791 | |||||||
As of December 31, 2023, and 2022, all inventory derived from Jeffs’ Brands.
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - PROPERTY AND EQUIPMENT:
| a. | Composition of property and equipment and accumulated depreciation thereon, grouped by major classifications and changes therein, and their movements during 2023: |
| Machinery and equipment |
Leasehold improvements and furniture |
Computer programs |
Total | |||||||||||||
| USD in thousands | ||||||||||||||||
| Cost: | ||||||||||||||||
| Balance as of January 1, 2023 | 735 | 592 | 1,096 | 2,423 | ||||||||||||
| Additions | 48 | 7 | 55 | |||||||||||||
| Currency translation | (2 | ) | (2 | ) | ||||||||||||
| Balance as of December 31, 2023 | 781 | 599 | 1,096 | 2,476 | ||||||||||||
| Accumulated Depreciation: | ||||||||||||||||
| Balance as of January 1, 2023 | 689 | 372 | 954 | 2,015 | ||||||||||||
| Additions | 63 | 41 | 1 | 106 | ||||||||||||
| Currency translation | 2 | 1 | 3 | |||||||||||||
| Balance as of December 31, 2023 | 754 | 414 | 955 | 2,123 | ||||||||||||
| Property and Equipment, net, as of December 31, 2023 | 27 | 185 | 141 | 353 | ||||||||||||
| b. | Composition of property and equipment and accumulated depreciation thereon, grouped by major classifications and changes therein, and their movements during 2022: |
| Machinery and equipment |
Leasehold improvements and furniture |
Computer programs |
Total | |||||||||||||
| USD in thousands | ||||||||||||||||
| Cost: | ||||||||||||||||
| Balance as of January 1, 2022 | 735 | 135 | 537 | 1,407 | ||||||||||||
| Additions | 42 | 32 | 74 | |||||||||||||
| Consolidation of Gix Internet (note 4F) | 425 | 542 | 967 | |||||||||||||
| Currency translation | (10 | ) | (15 | ) | (25 | ) | ||||||||||
| Balance as of December 31, 2022 | 735 | 592 | 1,096 | 2,423 | ||||||||||||
| Accumulated Depreciation: | ||||||||||||||||
| Balance as of January 1, 2022 | 692 | 126 | 512 | 1,330 | ||||||||||||
| Consolidation of Gix Internet (note 4F) | 205 | 401 | 606 | |||||||||||||
| Additions | 10 | 48 | 41 | 99 | ||||||||||||
| Currency translation | (13 | ) | (7 | ) | (20 | ) | ||||||||||
| Balance as of December 31, 2022 | 689 | 372 | 954 | 2,015 | ||||||||||||
| Property and Equipment, net, as of December 31, 2022 | 46 | 220 | 142 | 408 | ||||||||||||
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 – GOODWILL AND INATANGIBLE ASSETS:
| A. | Composition and movements: |
| Technology | Software License |
Patent | Brand Name |
Customer Relations |
Goodwill | Total | ||||||||||||||||||||||
| USD in thousands | ||||||||||||||||||||||||||||
| Cost: | ||||||||||||||||||||||||||||
| Balance as of January 1, 2023 | 12,921 | 1,366 | 75 | 6,039 | 6,234 | 9,068 | 35,703 | |||||||||||||||||||||
| Additions (see section B below) | 25 | 1,991 | 2,016 | |||||||||||||||||||||||||
| Currency translation | (13 | ) | (62 | ) | (10 | ) | (85 | ) | ||||||||||||||||||||
| Impairment loss (see section C below) | (1,304 | ) | (508 | ) | (1,812 | ) | ||||||||||||||||||||||
| Balance as of December 31, 2023 | 12,908 | 100 | 8,030 | 6,234 | 8,550 | 35,822 | ||||||||||||||||||||||
| Accumulated Amortization: | ||||||||||||||||||||||||||||
| Balance as of January 1, 2023 | (2,869 | ) | (1,230 | ) | (742 | ) | (4,841 | ) | ||||||||||||||||||||
| Additions | (2,026 | ) | (757 | ) | (891 | ) | (3,674 | ) | ||||||||||||||||||||
| Currency translation | 29 | 29 | ||||||||||||||||||||||||||
| Balance as of December 31, 2023 | (4,866 | ) | (1,987 | ) | (1,633 | ) | (8,486 | ) | ||||||||||||||||||||
| Intangible assets, net, as of December 31, 2023 | 8,042 | 100 | 6,043 | 4,601 | 8,550 | 27,336 | ||||||||||||||||||||||
| Technology | Software License |
Patent | Brand Name |
Customer Relations |
Goodwill | Total | ||||||||||||||||||||||
| USD in thousands | ||||||||||||||||||||||||||||
| Cost: | ||||||||||||||||||||||||||||
| Balance as of January 1, 2022 | 478 | 1,506 | 75 | 6,039 | 926 | 9,024 | ||||||||||||||||||||||
| Additions | 35 | 35 | ||||||||||||||||||||||||||
| Currency translation | (42 | ) | (175 | ) | (23 | ) | (240 | ) | ||||||||||||||||||||
| Consolidation of Gix Internet (note 4F) | 12,485 | 6,234 | 8,164 | 26,883 | ||||||||||||||||||||||||
| Balance as of December 31, 2022 | 12,921 | 1,366 | 75 | 6,039 | 6,234 | 9,068 | 35,703 | |||||||||||||||||||||
| Accumulated Amortization: | ||||||||||||||||||||||||||||
| Balance as of January 1, 2022 | (69 | ) | (634 | ) | (703 | ) | ||||||||||||||||||||||
| Additions | (1,712 | ) | (596 | ) | (742 | ) | (3,050 | ) | ||||||||||||||||||||
| Currency translation | (74 | ) | (74 | ) | ||||||||||||||||||||||||
| Consolidation of Gix Internet (note 4F) | (1,014 | ) | (1,014 | ) | ||||||||||||||||||||||||
| Balance as of December 31, 2022 | (2,869 | ) | (1,230 | ) | (742 | ) | (4,841 | ) | ||||||||||||||||||||
| Intangible assets, net, as of December 31, 2022 | 10,052 | 1,366 | 75 | 4,809 | 5,492 | 9,068 | 30,862 | |||||||||||||||||||||
| B. | Additions during 2023 and 2022: |
| 1. | Following the Fort Acquisition on March 9, 2023, an amount of USD 1,991 thousand was recorded as additional Brand name. For additional information, see note 4E. |
| 2. | Through the period from February 14, 2022, until February 28, 2022, the Company’s interest in Gix Internet increased to 38.03%, which resulted in gain of control in Gix Internet. Accordingly, Gix Internet was consolidated as of such date. As of the consolidation date, the Company recorded intangible assets in the amount of USD 17,705 thousand and goodwill in the amount of USD 6,602 thousand. For additional information see note 4F. |
| C. | Impairments during 2023 and 2022: |
| 1. |
As of December 31, 2023, the Group recognized indicators of impairment of the online advertising and internet traffic routing reporting unit. As a result, the Group performed an impairment test which included a quantitative analysis of the fair value of the reporting unit. The fair value was estimated using the income approach, which is based on the present value of the future cash flows attributable to the reporting unit. The Group compared the fair value of the reporting unit to its carrying amount. As the carrying amount exceeded the fair value, the Group recognized an impairment loss of USD 508 thousand in the consolidated statements of income/loss and other comprehensive income/loss, which was driven mainly due to a decrease in the cash flow projections. The impairment test was performed as of December 31, 2023, and did not take into account the recent developments in April 2024 as discussed in note 21(6). |
|
| During the year ended December 31, 2022, the Group did not recognize impairment losses. |
| 2. | For more information on the impairment of the Software License of Eventer, see note 4D. |
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 – LEASES:
On May 21, 2022, the Company has entered into a short-term lease agreement for its offices. According to the agreement, the Company will pay NIS 17 thousand (USD 5 thousand) plus VAT per month. On December 30, 2022, the Company terminated the agreement and paid the lessor a one-time compensation of NIS 11 thousand (USD 3 thousand).
On January 5, 2023, the Company entered into a new lease agreement for its offices for a period of 21 months effective as of February 1, 2023, with an option by the Company to extend the lease period for two additional terms of 12 months each. According to the agreement, the Company will pay NIS 8.3 thousand plus VAT per month. The Company uses its incremental borrowing rate of 10% as the discount rate for its leases, as the implicit rate in the lease is not readily determinable.
Jeffs’ Brands leases office space and a warehouse with a remaining useful life of less than 3 years and uses its incremental borrowing rate as the discount rate for its leases, as the implicit rate in the lease is not readily determinable. As of December 31, 2023, Jeffs’ Brands leases had a weighted average remaining lease term of 3 years and a weighted average borrowing rate of 10%.
On February 25, 2021, Gix Media entered into a lease agreement for a new corporate office of 479 square meters in Ramat Gan, Israel, for a monthly rent fee of USD 10 thousand. The lease period is for 36 months (the “initial lease period”) with an option to extend the lease period for two additional terms of 24 months each. In accordance with the lease agreement, Gix Media made leasehold improvements in exchange for a rent fee discount of USD 67 thousand which will be spread over the initial lease period.
In December 2023, Gix Media exercised the option to extend the lease period for an additional term of 24 months (from March 1, 2024, to February 28, 2026).
As of December 31, 2023, Gix’s Media leases had a weighted average remaining lease term of 4 years and a weighted average borrowing rate of 3.10%.
Right-of-use assets
| Buildings | ||||
| USD in thousands |
||||
| Cost: | ||||
| At December 31, 2021 | ||||
| Acquisition of a subsidiary (see note 4F) | 619 | |||
| Additions | 152 | |||
| At December 31, 2022 | 771 | |||
| Additions | 104 | |||
| At December 31, 2023 | 875 | |||
| Accumulated Depreciation: | ||||
| At December 31, 2021 | ||||
| Acquisition of a subsidiary (see note 4F) | (92 | ) | ||
| Charge for the year | (88 | ) | ||
| At December 31, 2022 | (180 | ) | ||
| Charge for the year | (199 | ) | ||
| At December 31, 2023 | 379 | |||
| Carrying amount: | ||||
| At December 31, 2023 | 496 | |||
| At December 31, 2022 | 591 | |||
Amounts recognized in profit and loss:
| 2023 | 2022 | |||||||
| USD in thousands | ||||||||
| Depreciation expense on right-of-use assets | 199 | 88 | ||||||
| Interest expense on lease liabilities | 82 | 82 | ||||||
| Expense relating to short-term leases | 71 | |||||||
For the year ended December 31, 2023, the total cash outflows for leases amounted to USD 150 thousand (2022: USD 66 thousand).
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 – LEASES: (continued)
Lease liabilities
Maturities of lease liabilities as of December 31, 2023 and 2022 are as follows:
| 2023 | 2022 | |||||||
| USD in thousands | ||||||||
| Year 1 | 102 | 148 | ||||||
| Year 2 | 162 | 148 | ||||||
| Year 3 | 143 | 133 | ||||||
| Year 4 | 148 | 114 | ||||||
| Year 5 | 19 | 118 | ||||||
| Onwards | - | 19 | ||||||
| Less: unearned interest | (4 | ) | (37 | ) | ||||
| 570 | 643 | |||||||
| Analyzed as: | ||||||||
| Non-current | 468 | 512 | ||||||
| Current | 102 | 131 | ||||||
| 570 | 643 | |||||||
NOTE 12 - TAXES ON INCOME:
| a. | Tax rates applicable to the Company and subsidiaries: |
The Company and all subsidiaries based in Israel - Gix Internet, Eventer, Fuel Doctor, Jeffs’ Brands and Viewbix Ltd. are taxed according to Israeli tax law, where the corporate tax rate is 23% for the years 2023, 2022 and 2021.
Gix Media and Cortex are recognized as a “Preferred-Technology Enterprise” in accordance with Section 51 of the Encouragement of Capital Investments Law, 1959 and are taxed at a reduced corporate tax rate of 12% for the years 2023, 2022 and 2021.
Viewbix Inc. and all subsidiaries of Jeffs’ Brands based in the U.S. - Smart Pro, Jeffs’ Brands Holdings and Fort US, are taxed according to U.S. tax laws. On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (the “Act”), which among other provisions, reduced the U.S. corporate tax rate from 35% to 21%, effective January 1, 2018.
Fort Products Ltd. is taxed according to U.K. tax laws. The U.K. corporate tax rate is 19%.
| b. | Final tax assessments: |
As of December 31, 2023, the Company had a final tax assessment for all tax year up to the year ended December 31, 2018.
As of December 31, 2023, Gix Internet had a final tax assessment for all tax year up to the year ended December 31, 2017. Gix Media had a final tax assessment for all tax year up to the year ended December 31, 2020. Cortex had a final tax assessment for all tax year up to the year ended December 31, 2017. Viewbix Ltd. had a final tax assessment for all the tax years up to the year ended December 31, 2017.
As of December 31, 2023, Eventer had a final tax assessment for all tax year up to the year ended December 31, 2018.
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 – TAXES ON INCOME: (continued)
| c. | Deferred taxes are comprised of the following components: |
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
Deferred taxes are comprised of the following components:
| As of December 31 |
As of December 31 |
|||||||
| 2023 | 2022 | |||||||
| USD in thousands | ||||||||
| Deferred tax assets | ||||||||
| Deferred research and development expenses | 77 | 261 | ||||||
| Intangible assets | 168 | 110 | ||||||
| Employee compensation and benefits | 28 | 13 | ||||||
| Accrued severance pay | - | 13 | ||||||
| Total deferred tax assets | 273 | 397 | ||||||
| Deferred tax liabilities: | ||||||||
| Intangible assets associated with business combinations | 1,465 | 1,817 | ||||||
| Total deferred tax liabilities | 1,465 | 1,817 | ||||||
| d. | Tax expense (benefit) included in the consolidated statements of income/loss and other comprehensive income/loss for the periods presented: |
| Year ended December 31, | ||||||||||||
| 2023 | 2022 | 2021 | ||||||||||
| USD in thousands | ||||||||||||
| Current tax expenses | 319 | 813 | 94 | |||||||||
| Tax benefit in respect of prior years | (160 | ) | (82 | ) | ||||||||
| Deferred tax expenses (income) | (233 | ) | (620 | ) | 11 | |||||||
| Taxe expense (benefit) | (74 | ) | 111 | 105 | ||||||||
| e. | Available carryforward tax losses: |
| December 31, 2023 |
December 31, 2022 |
|||||||
| USD in thousands | ||||||||
| Xylo Technologies | 65,000 | 60,000 | ||||||
| Eventer | 2,945 | 3,300 | ||||||
| Charging Robotics | 574 | |||||||
| Fuel Doctor | 905 | |||||||
| GERD IP | 3,089 | 2,124 | ||||||
| Jeffs’ Brands | 6,418 | 1,217 | ||||||
| Gix Internet | 18,971 | 18,471 | ||||||
The Group has not recorded deferred taxes asset in respect of these losses, as the utilization thereof is not expected to occur in the foreseeable future.
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 – TAXES ON INCOME: (continued)
| f. | Reconciliation of the theoretical tax expenses to the actual tax expenses: |
The following is reconciliation between the “theoretical” tax, which would apply to the Group if all of its income were taxed at the regular rate applicable to the Company in Israel and the amount of tax reflected in the consolidated statements of loss and other comprehensive loss for the reported year:
| 2023 | 2022 | 2021 | ||||||||||
| USD in thousands | ||||||||||||
| Income (Loss) before taxes on income | (21,806 | ) | (10,097 | ) | 4,151 | |||||||
| Theoretical tax rate | 23 | % | 23 | % | 23 | % | ||||||
| Theoretical tax expense (benefit) | (5,015 | ) | (2,322 | ) | 955 | |||||||
| Disallowed deductions (tax exempt income): | ||||||||||||
| Change in fair value of assets and liabilities measured at fair value through profit or loss | 862 | (38 | ) | (275 | ) | |||||||
| Share-based compensation | 178 | 183 | 539 | |||||||||
| Amortization of excess purchase price of an associate | 60 | |||||||||||
| Profit recognized upon deconsolidation | (2,678 | ) | ||||||||||
| Profit recognized upon first time consolidation | (529 | ) | ||||||||||
| Non-deductible expenses | 547 | 723 | - | |||||||||
| Equity losses | 945 | 611 | 494 | |||||||||
| Net loss from derecognition of investments accounted for using the equity method upon loss of significant influence | 513 | |||||||||||
| Different tax rates applicable to subsidiaries | (46 | ) | (360 | ) | (85 | ) | ||||||
| Tax benefits in respect of prior years | 29 | (84 | ) | |||||||||
| Other | 95 | 17 | ||||||||||
| Tax losses and timing differences incurred in the reporting year for which deferred taxes were not created | 1,818 | 1,910 | 1,095 | |||||||||
| Tax expense (benefit) | (74 | ) | 111 | 105 | ||||||||
NOTE 13 – TRADE ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
| a. | Trade accounts payable are denominated in the following currencies: |
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| USD in thousands | ||||||||
| NIS | 1,953 | 2,713 | ||||||
| USD | 10,756 | 17,708 | ||||||
| Other Currencies | 539 | |||||||
| 13,248 | 20,421 | |||||||
| b. | Accrued expenses and other current liabilities: |
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| USD in thousands | ||||||||
| Employees and related institutions | 980 | 949 | ||||||
| Government authorities | 684 | 798 | ||||||
| Accrued expenses | 894 | 961 | ||||||
| Liability to sellers (see note 4E) | 430 | |||||||
| Other | 175 | 492 | ||||||
| 3,163 | 3,200 | |||||||
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 – EQUITY:
| a. | Share capital: |
| 1) | Composed as follows: |
| Number of shares | Amount | |||||||||||||||||||||||||||||||
| Authorized | Issued and paid | Authorized | Issued and paid | |||||||||||||||||||||||||||||
| December 31, | December 31, | December 31, | December 31, | |||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||
| In thousands | NIS in thousands | USD in thousands | ||||||||||||||||||||||||||||||
| 200,000 | 200,000 | 27,989 | 24,661 | |||||||||||||||||||||||||||||
| 2) | The ordinary shares confer upon their holders’ voting rights and the right to participate in shareholders’ meetings, the right to receive dividends and the right to participate in surplus assets in the event of liquidation of the Company. |
| 3) | On June 17, 2022, the Company’s shareholders approved to increase the authorized number of shares from 50 million to 200 million. | |
| 4) | On July 7, 2022, the Company effected a reverse split of the Company’s authorized and outstanding ordinary shares at a ratio of 20:1 (the “Reverse Split”) and increased the authorized number of shares. Those changes were approved by the Company’s shareholders on June 17, 2022. On July 8, 2022, following the Reverse Split, the Company effected a change in the American Depositary Share (“ADS”) ratios for its American Depositary Receipt program such that each ADS represents one ordinary share of no-par value of the Company (the “Ordinary Share”), instead of twenty (20) pre-Reverse Split Ordinary Shares. The change in the ADS ratio is a technical change made in order to align the ratio so that one ADS equals to one Ordinary Share. |
| 5) | On November 14, 2022, the Company effected a change in the ratio of ordinary shares to each of the Company’s American Depositary Shares (“ADSs”), such that after the Reverse Split is implemented each ADS will represent 15 post-Split Ordinary Shares. The effect of such consolidation was applied retrospectively for all the number of shares, warrants, related par value and others presented in this note and elsewhere in the interim condensed consolidated financial statements. |
| 6) | On June 9, 2023, the Company issued 863,100 Ordinary Shares to Metagramm as part of the share purchase agreement. See note 4O. |
| 7) | On July 3, 2023, the Company issued 169,920 Ordinary Shares to Polyrizon as part of the share purchase agreement. See note 4H. |
| 8) | On August 8, 2023, the Company issued 328,506 Ordinary Shares to Pure Capital as part of the stock transfer agreement of Odysight.ai with a fair value of USD 105 thousand. See note 4C. |
| 9) | On November 6, 2023, the Company issued 1,293,450 Ordinary Shares in relation to RSUs grants. |
| 10) | On December 26, 2023, the Company issued 673,019 Ordinary Shares to Gix Internet. See note 4F. |
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 – EQUITY: (continued)
| b. | Share offering to the public and existing shareholders: |
On July 19, 2023, the Warrants C expired and were removed from the trading list.
During 2023 all the rest of the outstanding warrants of the Company expired.
The following table summarizes warrants outstanding as of December 31, 2022:
| Series | Date of grant | Number of warrants conversion to equivalent ADSs |
exercise price per warrant in USD |
Expiration date |
||||||||
| Series L (*) | November 2017 | 6,750 | 135 | May 27, 2023 | ||||||||
| Warrants C (*) | July 2018 | 176,045 | 52.5 | July 18, 2023 | ||||||||
| Warrants C (**) | July 2018 | 28,377 | 52.5 | July 18, 2023 | ||||||||
| HCW warrants (*) | July 2018 | 13,242 | 65.63 | July 18, 2023 | ||||||||
| Total | 224,414 | |||||||||||
| * | These warrants, under certain circumstances, can be exercised via cashless exercise mechanism as defined in the warrant agreement. Therefore, the warrants were classified as financial liabilities measured at fair value through profit or loss at each reporting period (see note 5). |
| ** | Recorded in equity, all the warrants expired during 2023. |
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 – EQUITY: (continued)
| c. | Share based payments: |
| 1) | In August 2013, the Company’s board of directors approved and adopted the Company’s 2013 Share Option and Incentive Plan, or the 2013 Plan, which expires in August 2023. The 2013 Plan provides for the issuance of shares and the granting of options, restricted shares, restricted share units and other share-based awards to employees, directors, officers, consultants, advisors, and service providers of us and the Company U.S. Subsidiary. The Plan provides for awards to be issued at the determination of The Company board of directors in accordance with applicable law. |
| 2) | The following are the grants of options to employees and other service providers: |
| Date of grant | Number of options granted |
exercise price per option to ordinary shares |
Exercise currency | Fair value on grant date (USD in thousands) |
Number of options outstanding- December 31, 2023 |
Number of options exercisable at December 31, 2023 |
Expiration date |
|||||||||||||||||
| January 2019(*) | 150,000 | 11.8 | NIS | 257 | 112,500 | 112,500 | January 9, 2025 | |||||||||||||||||
| July 2019(*) | 62,500 | 11.8 | NIS | 92 | 62,500 | 62,500 | July 25, 2025 | |||||||||||||||||
| June 2020 | 62,500 | 11.8 | NIS | 82 | 62,500 | 62,500 | May 31, 2026 | |||||||||||||||||
| July 2020(*) | 37,500 | 8.96 | NIS | 36 | 37,500 | 37,500 | July 8, 2026 | |||||||||||||||||
| October 2020 | 15,000 | 11.8 | NIS | 21 | 15,000 | 15,000 | October 21, 2026 | |||||||||||||||||
| June 2021(*) | 900,000 | 1.783 | USD | 1,221 | 900,000 | 825,000 | June 29, 2027 | |||||||||||||||||
| June 2021 | 280,000 | 1.783 | USD | 380 | 262,500 | 240,625 | June 29, 2027 | |||||||||||||||||
| June 2021 | 100,000 | 1.783 | USD | 136 | 100,000 | 83,333 | June 1, 2027 | |||||||||||||||||
| October 2021 | 90,000 | 1.783 | USD | 91 | 75,000 | 50,000 | October 12, 2027 | |||||||||||||||||
| Total | 1,697,500 | 1,627,500 | 1,488,958 | |||||||||||||||||||||
| (*) | Granted to related parties. |
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 – EQUITY: (continued)
| c. | Share based payments: (continued) |
The fair value of all of the options was calculated using the Black and Scholes options pricing model, and based on the following assumptions:
| Date of grant | Fair value on grant date- in thousands |
Share price on date of grant |
Expected dividend |
Expected volatility |
Risk
free interest |
Vesting conditions | Expected term |
|||||||||||
| January 2019 | 947 NIS | 10.12 NIS | None | 74 | % | 1.45 | % | will vest in 12 equals quarterly instalments over a three-year period commencing October 1, 2018 | 6 years | |||||||||
| July 2019 | 325 NIS | 8.72 NIS | None | 75 | % | 1.12 | % | 25% will vest on the first anniversary of the grant date and 75% will vest on a quarterly basis over a period of three years thereafter | 6 years | |||||||||
| June 2020 | 282 NIS | 7.94 NIS | None | 74 | % | 0.53 | % | will vest in 12 equals quarterly instalments over a three-year period commencing June 1, 2020 | 6 years | |||||||||
| July 2020 | 124 NIS | 5.8 NIS | None | 74 | % | 0.37 | % | will vest in 12 equals quarterly instalments over a three-year period commencing July 9, 2020 | 6 years | |||||||||
| October 2020 | 70 NIS | 8 NIS | None | 76 | % | 0.42 | % | will vest in 12 equals quarterly instalments over a three-year period commencing October 22, 2020 | 6 years | |||||||||
| June 2021 | 1,737 USD | 1.8 USD | None | 87 | % | 0.69 | % | will vest over a period of 3 years commencing on April 1, 2021(except for 2,000,000 options commencing on June 1, 2021), with 1/12 of such options vesting at the end of each subsequent three-month period following the grant | 6 years | |||||||||
| October 2021 | 91 USD | 1.4 USD | None | 85 | % | 0.47 | % | will vest over a period of 3 years commencing on October 12, 2021, with 1/12 of such options vesting at the end of each subsequent three-month period following the grant | 6 years | |||||||||
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 – EQUITY: (continued)
| c. | Share based payments: (continued) |
| 3) | The changes in the number of share options and the weighted averages of their exercise prices are as follows: |
| For the year ended December 31, | ||||||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||||||
| Number of options |
Weighted average of exercise price per 1 ordinary share-(NIS) |
Number of options |
Weighted average of exercise price per 1 ordinary share-(NIS) |
Number of options |
Weighted average of exercise price per 1 ordinary share-(NIS) |
|||||||||||||||||||
| Outstanding at the beginning of year | 1,673,850 | 7.00 | 1,674,950 | 7.02 | 348,182 | 13.6 | ||||||||||||||||||
| Granted | 1,370,000 | 5.81 | ||||||||||||||||||||||
| Forfeited | (32,500 | ) | 5.78 | (1,100 | ) | 32.4 | (42,778 | ) | 17.23 | |||||||||||||||
| Expired | (13,850 | ) | 32.4 | (454 | ) | 410 | ||||||||||||||||||
| Outstanding at year end | 1,627,500 | 6.81 | 1,673,850 | 7.00 | 1,674,950 | 7.02 | ||||||||||||||||||
| Exercisable at year end | 1,488,958 | 6.91 | 1,039,579 | 7.57 | 530,054 | 8.78 | ||||||||||||||||||
| 4) | The amounts of expenses that were recorded for options to employees and other service providers are USD 198 thousand, USD 624 thousand and USD 1,049 thousand for the years ended December 31, 2023, 2022 and 2021, respectively. |
| 5) |
The plans are intended to be governed by the terms stipulated by Section 102 to the Israeli Income Tax Ordinance (except for the options to controlling shareholders and directors).
In accordance with these general rules and the track chosen by the Company pursuant to the terms thereof, in respect of options granted to employees under the option allotment plan, the Company is not allowed to claim as an expense for tax purposes the amounts credited to employees as a benefit, including amounts recorded as salary benefits in the Company’s books, with the exception of the salary-benefit component, if exists, determined on the grant date. |
| d. | Dividends: |
In December 2022, the Company distributed dividends in an aggregated amount of USD 1,582 thousand.
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 – EQUITY: (continued)
| e. | Restricted Share Units
On June 15, 2023, the Board approved a grant of restricted share units (RSUs) to the Company’s Directors, Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”), employees and to an advisor of the Company, subject to the approval of shareholders at the general meeting of the shareholders.
On August 8, 2023, the Company’s shareholders approved the RSUs grants at the Company’s annual general meeting. The RSUs shall vest over a period of three years commencing on January 1, 2023, with 1/12 of such options vesting at the end of each subsequent three-month period following the grant.
The RSUs grant will be in accordance and pursuant to Section 102 of the Income Tax Ordinance [New Version] (“Tax Ordinance”), if applicable, and the RSUs will be accelerated upon the closing of a material transaction, resulting in change of control of the Company.
During the year ended December 31, 2023, the Company recognized an expense in the aggregated amount of USD 472 thousand in relation to these RSUs. |
NOTE 15 – EXPENSES BY NATURE
| Year ended December 31, | ||||||||||||
| 2023 | 2022 | 2021 | ||||||||||
| USD in thousands | ||||||||||||
| Payroll and related expenses | 8,638 | 7,647 | 2,656 | |||||||||
| Professional fees | 5,197 | 7,421 | 5,990 | |||||||||
| Traffic-acquisition, materials used and subcontracted work | 76,613 | 75,455 | 3,248 | |||||||||
| Preparation of patents | 72 | 153 | 471 | |||||||||
| Rent and office maintenance | 187 | 139 | 158 | |||||||||
| Depreciation and amortization | 3,979 | 3,188 | 342 | |||||||||
| Advertising and participation in exhibitions | 1,233 | 1,616 | 1,712 | |||||||||
| Other | 2,239 | 2,262 | 1,312 | |||||||||
| Amazon Fees | 4,381 | 2,558 | 2,426 | |||||||||
| TOTAL COST OF REVENUES, RESEARCH AND DEVELOPMENT, SELLING AND MARKETING AND GENERAL AND ADMINISTRATIVE EXPENSES | 102,539 | 100,439 | 18,315 | |||||||||
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 – EARNING (LOSS) PER SHARE:
Basic net earnings (loss) per share is computed by dividing net earnings (loss) attributable to ordinary shareholders of Xylo Technologies by the weighted average number of ordinary shares outstanding for the reporting periods.
Diluted net earnings (loss) per share is computed by dividing the basic net loss per share including adjustment of the dilutive effect of the Company’s revaluation of warrants, by the weighted-average number of ordinary shares and the potential dilutive ordinary shares outstanding during the period. Diluted shares outstanding include the dilutive effect of in-the-money options using the treasury stock method.
The following table presents the numerator and denominator of the basic and diluted net loss per share computations:
| Year ended December 31, | ||||||||||||
| 2023 | 2022 | 2021 | ||||||||||
| Numerator (USD in thousands): | ||||||||||||
| Net income (loss) for the year attributable to Xylo Technologies | (16,025 | ) | (9,815 | ) | 6,794 | |||||||
| Denominator (in thousands): | ||||||||||||
| 25,292 | 24,385 | 23,036 | ||||||||||
| Net earnings (loss) per share attributable to Xylo Technologies (USD): | ||||||||||||
| Basic | (0.63 | ) | (0.40 | ) | 0.2 | |||||||
| Diluted | (0.63 | ) | (0.40 | ) | 0.2 | |||||||
“Related Parties” – As defined in IAS 24 – ‘Related Party Disclosures” (hereinafter- “IAS 24”)
Key management personnel of the Company - included together with other entities, in the said definition of “Related Parties” mentioned in IAS 24.
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 – TRANSACTIONS AND BALANCES WITH RELATED PARTIES:
| a. | Transactions with related parties: | |
| 1) | Composed as follows: |
| Year ended on December 31, |
||||||||||||
| 2023 | 2022 | 2021 | ||||||||||
| USD in thousands | ||||||||||||
| Compensations to key officers (1) | 1,746 | 1,784 | 1,241 | |||||||||
| Compensations to directors (2) | 1,525 | 837 | 733 | |||||||||
| Directors’ and officers’ insurance | 771 | 846 | 788 | |||||||||
| Consultant services (3) | 180 | 218 | ||||||||||
| Interest and discount amortizations of loans from Jeffs’ Brands related parties (4) | 42 | 172 | ||||||||||
| Finance expense on Screenz payable balance (note 4D) | 212 | 169 | ||||||||||
| Compensation to member of senior management of Gix Internet (5) | 188 | 34 | ||||||||||
| Eventer sales and marketing expenses to Keshet (note 4D) | 165 | 279 | ||||||||||
| Eventer revenues from related parties | 23 | |||||||||||
| Eventer general and administrative expenses to Screenz | 41 | 13 | ||||||||||
| Jeffs’ Brands cost of revenues from related parties (6) | 545 | |||||||||||
| Jeffs’ Brands income from related parties (7) | 255 | |||||||||||
| Jeffs’ Brands revenue sharing payment (8) | 17 | |||||||||||
| Management fees from Parazero included in other income (note 4L) | 50 | |||||||||||
| Other income from credit line to Parazero (note 4L) | 40 | |||||||||||
| (1) | Includes granted options benefit in the aggregated amount of USD 80 thousand, USD 263 thousand and USD 583 thousand for the years ended December 31, 2023, 2022 and 2021, respectively and provision of bonus of approximately USD 145 thousand and USD 308 thousand, for each of the years ended December 31, 2023, and 2022, respectively. Also, includes grant of restricted share units (RSUs) in the aggregated amount of USD 112 thousand for the year ended December 31, 2023. |
| (2) | Includes granted options benefit in the aggregated amount of USD 165 thousand, USD 81 thousand and USD 195 thousand for the years ended December 31, 2023, 2022 and 2021, respectively and provision and payments of bonus of approximately USD 119 thousand, USD 77 thousand and USD 86 thousand for the years ended December 31, 2023, 2022 and 2021, respectively. Also, includes grant of restricted share units (RSUs) in the aggregated amount of USD 193 thousand for the year ended December 31, 2023. |
| (3) | Includes consulting fees to Pure Capital who is a related party of the Company’s subsidiary Jeffs’ Brands. |
| (4) | Includes interest and discount amortizations of loans to related parties of the Company’s subsidiary Jeffs’ Brands. |
| (5) | Compensation to Cortex’s CTO, a related party of Gix Internet. |
| (6) | Includes inventory storage expenses to Pure NJ Logistics LLC who is a related party of the Company’s subsidiary Jeffs’ Brands. See note 4E. |
| (7) | Includes consulting income and a one-time signing bonus from SciSparc Nutraceuticals who is a related party of the Company’s subsidiary Jeffs’ Brands. See note 4E. |
| (8) | Includes revenue sharing to Pure Capital who is a related party of the Company’s subsidiary Jeffs’ Brands. |
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 – TRANSACTIONS AND BALANCES WITH RELATED PARTIES: (continued)
| a. | Transactions with related parties: (continued) |
| 2) | Indemnification, exemption and insurance for directors and officers of the Company |
| a. | The Company provides its directors and officers with an obligation for indemnification and exemption. |
| b. | The Company has a liability for insurance of directors and officers covering all of the Company’s directors and officers. The Company currently has directors’ and officers’ liability insurance providing total coverage of USD 4 million in aggregate for the benefit of all of the Company directors and officers, in respect of which the Company are charged a Seventeen month premium of USD 191,250, and which includes a deductible of up to USD 300,000 per claim, other than securities related claims filed in the United States or Canada, for which the deductible will not exceed USD 1 million. |
| 3) | Transactions |
| a. | On March 22, 2023, Jeffs’ Brands entered into a consulting agreement with SciSparc Nutraceuticals. See note 4E. | |
| b. | In March 2023, Jeffs’ Brands paid Pure Capital USD 352 thousand in accordance with the consultant agreement in relation to the two purchases of Fort and SciSparc Nutraceuticals. The consultancy fees were recorded as part of the investments in Fort and SciSparc Nutraceuticals. |
|
| c. | On July 20, 2023, Viewbix Inc. granted 51,020 RSUs to Viewbix’s Inc. Chief Executive Officer (“CEO”). | |
| d. | On August 7, 2023, the Company’s shareholders approved during the general meeting the re-election of Mr. Eli Cohen to serve as a director of the Company, a grant of RSUs to the Company’s Chief Executive Officer, Chief Financial Officer, the Company’s Directors, employees and to an advisor. |
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 – TRANSACTIONS AND BALANCES WITH RELATED PARTIES: (continued)
| b. | Balances with related parties: |
| (1) | Current assets under related parties section: |
| December 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| USD in thousands | ||||||||
| Advances to Pure Logistics (related party of Jeffs’ Brands) (note 4E) | 228 | |||||||
| Other receivables (a related party of Gix Internet) (note 4F) | 53 | 60 | ||||||
| Other receivables (a related party of Eventer) (note 4D) | 6 | 10 | ||||||
| 59 | 298 | |||||||
| (2) | Current assets under loans to associates section: |
| December 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| USD in thousands | ||||||||
| Loan to Zig Miami 54 (note 4G) | 1,545 | - | ||||||
| Loan to Laminera (note 4M) | - | 93 | ||||||
| Loan to Polyrizon (note 4M) | 77 | - | ||||||
| Loan to Revoltz (note 4I) | 62 | 62 | ||||||
| Credit line to Parazero (note 4L) | - | 391 | ||||||
| 1,684 | 546 | |||||||
| (3) | Current assets under loans to others section: |
| December 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| USD in thousands | ||||||||
| Loan to Metagramm (note 4O) | 250 | |||||||
| 250 | ||||||||
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 – TRANSACTIONS AND BALANCES WITH RELATED PARTIES: (continued)
| b. | Balances with related parties: (continued) |
| (4) | Current Liabilities: |
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| USD in thousands | ||||||||
| Compensation to key management personnel (*) | 681 | 649 | ||||||
| Other payable dividend to related parties of Gix Internet | 284 | |||||||
| Other accrued expenses to related parties of Jeffs’ Brands | 216 | |||||||
| Other accrued expenses to related parties of Gix Internet | 6 | |||||||
| Other accrued expenses to related parties of Eventer | 6 | 122 | ||||||
| 909 | 1,055 | |||||||
| * | Compensation to key management: |
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| USD in thousands | ||||||||
| Directors’ fees | 322 | 496 | ||||||
| Payroll, provision for bonus and for termination of employment | 359 | 153 | ||||||
| 681 | 649 | |||||||
| (5) | Non-Current Liabilities: |
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| USD in thousands | ||||||||
| Loans from related parties of Viewbix Ltd. (note 4F) | 187 | |||||||
| 187 | ||||||||
| c. | As to options and RSUs granted to related parties, see notes 14c and 14e. |
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 – REVENUES:
The following table present the Group’s revenues disaggregated by revenue type:
| Year ended on December 31, | ||||||||||||
| 2023 | 2022 | 2021 | ||||||||||
| USD in thousands | ||||||||||||
| Miniature camera and related equipment (from Odysight.ai) | 24 | |||||||||||
| Revenues from commissions (from Eventer) | 2,103 | 2,465 | 1,185 | |||||||||
| Revenues from sale of products (from Jeffs’ Brands) | 10,008 | 5,861 | 6,509 | |||||||||
| Revenues from internet services (from Gix Internet) | 79,613 | (*) 83,532 | ||||||||||
| MUSE and related equipment (from Xylo Technologies) | 2,400 | |||||||||||
| 91,724 | 91,858 | 10,118 | ||||||||||
| (*) | The revenues from Gix Internet are presented for the period from February 28, 2022 to December 31, 2022. |
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19 – SEGMENTS:
The Group identified seven operating segments as follows: corporate, e-commerce, online advertising & internet traffic routing, online event management, medical, real-estate and electronics.
The Company concluded that the medical, real-estate and electronics segments are not “reportable segments” as defined in IFRS 8, Operating Segments. As such, these segments were combined and disclosed under “Others”.
The CODM measures and evaluates the operating performance of the Group’s segments based on operating loss (income), assets and liabilities.
The table set forth other information of the Group:
| December 31, 2023 | ||||||||||||||||||||||||||||
| Corporate | E-commerce | Online Advertising & Internet Traffic Routing |
Online Event Management |
Others | Adjustments and eliminations | Total | ||||||||||||||||||||||
| USD in thousands | ||||||||||||||||||||||||||||
| Total segments’ assets | 10,708 | 13,122 | 35,178 | 1,874 | (*) 3,444 | (430 | ) | 63,896 | ||||||||||||||||||||
| Total segments’ liabilities | (867 | ) | (4,483 | ) | (25,723 | ) | (2,015 | ) | (605 | ) | 2,232 | (31,461 | ) | |||||||||||||||
| (*) | Includes investments accounted for using the equity method of USD 498 thousand and USD 370 thousand in relation to Polyrizon and Zig Miami 54, respectively. In addition, includes loan to Zig Miami 54 in an amount of USD 1,545 thousand. |
| December 31, 2022 | ||||||||||||||||||||||||||||
| Corporate | E-commerce | Online Advertising & Internet Traffic Routing |
Online Event Management |
Others | Adjustments and eliminations | Total | ||||||||||||||||||||||
| USD in thousands | ||||||||||||||||||||||||||||
| Total segments’ assets | 19,478 | 15,667 | 50,999 | 3,208 | (*) 11,368 | (3,069 | ) | 97,651 | ||||||||||||||||||||
| Total segments’ liabilities | (1,198 | ) | (5,025 | ) | (33,203 | ) | (3,244 | ) | (952 | ) | 660 | (42,962 | ) | |||||||||||||||
| (*) | Includes investments accounted for using the equity method of USD 9,375 thousand and USD 976 thousand in relation to Odysight.ai and Parazero, respectively. |
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19 – SEGMENTS: (continued)
The table set forth the operating results of the Group:
| Year ended December 31, 2023 | ||||||||||||||||||||||||||||
| Corporate | E-commerce | Online Advertising & Internet Traffic Routing |
Online Event Management |
Others | Adjustments and eliminations | Total | ||||||||||||||||||||||
| USD in thousands | ||||||||||||||||||||||||||||
| External revenues | 10,008 | 79,613 | 2,103 | - | - | 91,724 | ||||||||||||||||||||||
| Segment results – operating loss | (4,295 | ) | (5,614 | ) | (3,548 | ) | (651 | ) | (*) (3,446 | ) | (5,767 | ) | (23,321 | ) | ||||||||||||||
| Non-operating income (loss) | 446 | 2,739 | - | - | (138 | ) | 3,047 | |||||||||||||||||||||
| Finance income (loss) | 83 | (110 | ) | (1,605 | ) | (82 | ) | (25 | ) | 207 | (1,532 | ) | ||||||||||||||||
| Loss before taxes on income | (3,766 | ) | (2,985 | ) | (5,153 | ) | (733 | ) | (3,471 | ) | (5,698 | ) | (21,806 | ) | ||||||||||||||
| Tax benefit (expense) on income | 3 | (7 | ) | 66 | 12 | - | - | 74 | ||||||||||||||||||||
| Segment results – net loss | (3,763 | ) | (2,992 | ) | (5,087 | ) | (721 | ) | (3,471 | ) | (5,698 | ) | (21,732 | ) | ||||||||||||||
| (*) |
Includes equity losses of USD 209 thousand in relation to Polyrizon, of USD 85 thousand in relation to Zig Miami 54, of USD 543 thousand in relation to Parazero, of USD 1,176 thousand in relation to Laminera and USD 660 thousand in relation to Odysight.ai. |
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19 – SEGMENTS: (continued)
The table set forth the operating results of the Group:
| Year ended December 31, 2022 | ||||||||||||||||||||||||||||
| Corporate | E-commerce | Online Advertising & Internet Traffic Routing |
Online Event Management |
Others | Adjustments and eliminations | Total | ||||||||||||||||||||||
| USD in thousands | ||||||||||||||||||||||||||||
| External revenues | 5,859 | 83,534 | 2,465 | - | 91,858 | |||||||||||||||||||||||
| Segment results – operating income (loss) | (2,985 | ) | (4,510 | ) | (*) 2,341 | (748 | ) | (**) (2,829 | ) | (5,053 | ) | (13,784 | ) | |||||||||||||||
| Non-operating income (loss) | (167 | ) | 3,619 | (731 | ) | (30 | ) | 137 | 3,168 | 5,996 | ||||||||||||||||||
| Finance income (loss) | (224 | ) | (520 | ) | (1,100 | ) | (539 | ) | (8 | ) | 82 | (2,309 | ) | |||||||||||||||
| Profit (Loss) before taxes on income | (3,376 | ) | (1,411 | ) | 510 | (1,317 | ) | (2,700 | ) | (1,803 | ) | (10,097 | ) | |||||||||||||||
| Tax benefit (expense) on income | (5 | ) | 5 | (310 | ) | 10 | 189 | (111 | ) | |||||||||||||||||||
| Segment results – profit (loss) | (3,381 | ) | (1,406 | ) | 200 | (1,317 | ) | (2,690 | ) | (1,614 | ) | (10,208 | ) | |||||||||||||||
| (*) | Includes equity loss of USD 215 thousand in relation to Gix Internet for the two months period until February 28, 2022. |
| ** | Includes equity losses of USD 1,360 thousand in relation to Odysight.ai and of USD 615 thousand in relation to Parazero. |
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 20 – ENTITY LEVEL DISCLOSURES:
| a. | Revenues by geographical area (based on the location of customers): |
| Year ended on December 31, | ||||||||||||
| 2023 | 2022 | 2021 | ||||||||||
| USD in thousands | ||||||||||||
| USA | 49,954 | 52,129 | 6,307 | |||||||||
| Europe | 19,285 | 21,731 | 127 | |||||||||
| Great Britain | 5,628 | 166 | ||||||||||
| Israel | 15,653 | 15,266 | 1,183 | |||||||||
| Canada | 944 | 385 | 100 | |||||||||
| Asia | 254 | 2,108 | 2,400 | |||||||||
| Other | 6 | 73 | 1 | |||||||||
| 91,724 | 91,858 | 10,118 | ||||||||||
| b. | Major customers |
Set forth below is a breakdown of Company’s revenue by major customers (major customer –revenues from these customers constitute at least 10% of total revenues in a certain year):
| Year ended on December 31, | ||||||||||||
| 2023 | 2022 | 2021 | ||||||||||
| USD in thousands | ||||||||||||
| Customer A | 2,400 | |||||||||||
| Customer B | 14,471 | 16,919 | - | |||||||||
| Customer C | 11,334 | 16,468 | ||||||||||
F-
XYLO TECHNOLOGIES LTD (Formerly known as MEDIGUS LTD)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 21 – EVENT SUBSEQUENT TO DECEMBER 31, 2023:
| 1. | On January 29, 2024, Jeffs’ Brands entered into a private placement transaction pursuant to a securities purchase agreement, with certain institutional investors, providing for the issuance of ordinary shares, pre-funded warrants to purchase ordinary shares, series A warrants to purchase ordinary shares and series B warrants to purchase ordinary shares for aggregate gross proceeds of approximately USD 7.275 million.
The Company did not participate in the private placement and as a result its holdings in Jeffs’ Brands decreased to 13.37% of Jeffs’ Brands issued and outstanding share capital, which resulted in loss of control in Jeffs’ Brands as of January 29, 2024. Accordingly, Jeffs’ Brands is expected to be deconsolidated as of such date. |
| 2. | On January 29, 2024, the Company signed a term sheet for a standby equity purchase agreement with Yorkville Advisors Global LP for an investment of up to USD 15 million over 3 years, in consideration of the Company’s ADS’s. The Company may request a pre-paid advances of up to USD 5 million subject to certain conditions. |
| 3. | On February 8, 2024, the Company and Gix Internet signed an addendum to the loan agreement, effective as of January 1, 2024. Pursuant to the addendum, the loan repayment will be postponed until July 1, 2024. See note 4F. |
| 4. | On April 1, 2024, a lawsuit seeking declaratory judgement was filed in the District Court of Tel Aviv-Jaffa in Israel by minority shareholders of Eventer against Eventer and the Company (together, the “Defendants”). The minority shareholders of Eventer (the “Plaintiffs”), hold in aggregate 31.86% of the outstanding ordinary shares of Eventer.
The Plaintiffs allege, among others, that Defendants violated the agreement whereby the Company acquired control of Eventer (the “Purchase Agreement”), which established a “separation” mechanism, within which certain Plaintiffs were granted an option to convert their shares in Eventer into shares of the Company. The claim alleges that the Company has violated the terms of the Purchase Agreement by refusing to negotiate Eventer’s valuation to enable certain of the Plaintiffs to exercise their option to convert their shares of Eventer into shares of the Company. The Plaintiffs seek an aggregate of NIS 1,229 thousand from Eventer (approximately USD 335 thousand) and seek to convert Eventer’s shares into the Company shares for an aggregate value of NIS 8,602 thousand (approximately USD 2,348 thousand) following which all the Plaintiffs shares in Eventer would be transferred to the Company.
The Company has not yet submitted its response to the District Court of Tel Aviv – Jaffa. The Company’s position is that the lawsuit has no merit, and it intends to defend its position vigorously. As of the date of issuance of these financial statements, the Company is unable to estimate a loss or range of loss of this claim. |
| 5. | On April 1, 2024, the Company changed its name to Xylo Technologies Ltd., following which on April 18, 2024, the Company changed its trading symbol on Nasdaq to “XYLO” |
| 6. | In April 2024, Viewbix Inc. was informed by Cortex, that certain recent developments relating to publishers that are categorized by a number of programmatic advertisers as “Made for Advertising” (MFA) sites, have negatively impacted Cortex’s business and operations. In connection with the foregoing, a significant customer of Cortex recently notified Cortex that in light of the foregoing changes related to MFA, it decided to stop advertising on Cortex’s sites, which decision Cortex anticipates will significantly and negatively impact its future revenue streams. |
F-
Exhibit 1.1
THE COMPANIES LAW, 1999
A LIMITED LIABILITY COMPANY
----------------
AMENDED AND RESTATED
ARTICLES OF ASSOCIATION
OF
XYLO TECHNOLOGIES LTD.
As Amended on April 1, 2024
Preliminary
1. Definitions; Interpretation.
| (a) | In these Articles, the following terms (whether or not capitalized) shall bear the meanings set forth opposite them, respectively, unless the subject or context requires otherwise. |
| “Affiliate” | with respect to any specified person, shall mean, any other person who or which, directly or indirectly, controls, is controlled by, or is under common control with such specified person. | |
| “Articles” | shall mean these Amended and Restated Articles of Association, as amended from time to time. | |
| “Board of Directors” | shall mean the Board of Directors of the Company. | |
| “Chairperson” | shall mean the Chairperson of the Board of Directors, or the Chairperson of the General Meeting, as the context implies; | |
| “Companies Law” | shall mean the Israeli Companies Law, 5759-1999 and the regulations promulgated thereunder. The Companies Law shall include reference to the Companies Ordinance (New Version), 5743-1983, of the State of Israel, to the extent in effect according to the provisions thereof. | |
| “Company” | shall mean Xylo Technologies Ltd. | |
| “Director(s)” | shall mean the member(s) of the Board of Directors holding office at a given time. | |
| “Economic Competition Law” | shall mean the Israeli Economic Competition Law, 5758-1988 and the regulations promulgated thereunder. | |
| “Effective Time” | shall mean the effective time of these Articles. | |
| “External Director(s)” | shall have the meaning provided for such term in the Companies Law. | |
| “General Meeting” | shall mean an Annual General Meeting or Special General Meeting of the Shareholders (each as defined in Article 23 of these Articles), as the case may be. | |
| “NIS” | shall mean New Israeli Shekels. | |
| “Office” | shall mean the registered office of the Company at any given time. |
| “Office Holder” or “Officer” | shall have the meaning provided for such term in the Companies Law. |
| “Securities Law” | shall mean the Israeli Securities Law, 5728-1968, and the regulations promulgated thereunder. | |
| “Shareholder(s)” | shall mean the shareholder(s) of the Company, at any given time. | |
| “Stock Exchange” | shall mean the Nasdaq Stock Market or on any other stock exchange on which the Company’s Ordinary Shares are then listed for trading. |
| (b) | Unless the context shall otherwise require: words in the singular shall also include the plural, and vice versa; any pronoun shall include the corresponding masculine, feminine and neuter forms; the words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”; the words “herein”, “hereof” and “hereunder” and words of similar import refer to these Articles in their entirety and not to any part hereof; all references herein to Articles or clauses shall be deemed references to Articles or clauses of these Articles; any references to any agreement or other instrument or law, statute or regulation are to it as amended, supplemented or restated, from time to time (and, in the case of any law, to any successor provisions or re-enactment or modification thereof being in force at the time); any reference to “law” shall include any law (‘din’) as defined in the Interpretation Law, 5741-1981 and any applicable supranational, national, federal, state, local, or foreign statute or law and shall be deemed also to refer to all rules and regulations promulgated thereunder; any reference to a “day” or a number of “days” (without any explicit reference otherwise, such as to business days) shall be interpreted as a reference to a calendar day or number of calendar days; any reference to a business day shall mean each calendar day other than any calendar day on which commercial banks in New York, New York or Tel-Aviv, Israel are authorized or required by applicable law to close; reference to a month or year means according to the Gregorian calendar; any reference to a “person” shall mean any individual, partnership, corporation, limited liability company, association, estate, any political, governmental, regulatory or similar agency or body, or other legal entity; and reference to “written” or “in writing” shall include written, printed, photocopied, typed, any electronic communication (including email, facsimile, signed electronically (in Adobe PDF, DocuSign or any other format)) or produced by any visible substitute for writing, or partly one and partly another, and signed shall be construed accordingly. |
| (c) | The captions in these Articles are for convenience only and shall not be deemed a part hereof or affect the construction or interpretation of any provision hereof. |
| (d) | The specific provisions of these Articles shall supersede the provisions of the Companies Law to the extent permitted thereunder. |
Limited Liability
| 2. | The Company is a limited liability company and each Shareholder’s liability for the Company’s debt is therefore limited (in addition to any liabilities under any contract) to the payment of the full amount (par value (if any) and premium) such Shareholder was required to pay the Company for such Shareholder’s Shares (as defined below) and which amount has not yet been paid by such Shareholder. |
Company’s Objectives
3. Objectives.
| The Company’s objectives are to carry on any business, and do any act, which is not prohibited by law. |
4. Donations.
| The Company may donate a reasonable amount of money (in cash or in kind, including the Company’s securities) to worthy purposes such as the Board of Directors may determine in its discretion, even if such donations are not made on the basis or within the scope of business considerations of the Company. |
Share Capital
5. Authorized Share Capital.
| (a) | The authorized share capital of the Company shall consist of 200,000,000 Ordinary Shares without par value (the “Shares”). |
| (b) | The Shares shall rank pari passu in all respects. The Shares may be redeemable to the extent set forth in Article 18. |
6. Increase of Authorized Share Capital.
| (a) | The Company may, from time to time, by a Shareholders’ resolution, whether or not all of the Shares then authorized have been issued, and whether or not all of the Shares theretofore issued have been called up for payment, increase its authorized share capital by increasing the number of Shares it is authorized to issue by such amount, and such additional Shares shall confer such rights and preferences, and shall be subject to such restrictions, as such resolution shall provide. |
| (b) | Except to the extent otherwise provided in such resolution, any new Shares included in the authorized share capital increase as aforesaid shall be subject to all of the provisions of these Articles that are applicable to Shares that are included in the existing share capital. |
7. Special or Class Rights; Modification of Rights.
| (a) | The Company may, from time to time, by a Shareholders’ resolution, provide for shares with such preferred or deferred rights or other special rights and/or such restrictions, whether in regard to dividends, voting, repayment of share capital or otherwise, as may be stipulated in such resolution. |
| (b) | If at any time the share capital of the Company is divided into different classes of shares, the rights attached to any class, unless otherwise provided by these Articles, may be modified or cancelled by the Company by a resolution of the General Meeting of the holders of all shares as one class, without any required separate resolution of any class of shares. |
| (c) | The provisions of these Articles relating to General Meetings shall apply, mutatis mutandis, to any separate General Meeting of the holders of the shares of a particular class, it being clarified that the requisite quorum at any such separate General Meeting shall be Shareholders present in person or by proxy and holding not less than thirty-three and one-third percent (33⅓%) of the issued shares of such class, provided, however, that if (i) such separate General Meeting of the holders of the particular class was initiated by and convened pursuant to a resolution adopted by the Board of Directors and (ii) at the time of such meeting the Company is qualified to use the forms of a “foreign private issuer” under US securities laws, then the requisite quorum at any such separate General Meeting shall be Shareholders (not in default in payment of any sum referred to in Article 13 hereof) present in person or by proxy and holding not less than ten percent (10%) of the issued shares of such class. |
| (d) | Unless otherwise provided by these Articles, an increase in the authorized share capital, the creation of a new class of shares, an increase in the authorized share capital of a class of shares, or the issuance of additional shares thereof out of the authorized and unissued share capital, shall not be deemed, for purposes of this Article 7, to modify or derogate or cancel the rights attached to previously issued shares of such class or of any other class. |
8. Consolidation, Division, Cancellation and Reduction of Share Capital.
| (a) | The Company may, from time to time, by or pursuant to an authorization of a Shareholders’ resolution, and subject to applicable law: |
| (i) | consolidate all or any part of its issued or unissued authorized share capital; |
| (ii) | divide or sub-divide its Shares (issued or unissued) or any of them and the resolution whereby any Share is divided may determine that, as among the holders of the Shares resulting from such subdivision, one or more of the Shares may, in contrast to others, have any such preferred or deferred rights or rights of redemption or other special rights, or be subject to any such restrictions, as the Company may attach to unissued or new shares; | |
| (iii) | cancel any authorized Shares which, at the date of the adoption of such resolution, have not been issued to any person nor has the Company made any commitment, including a conditional commitment, to issue such Shares, and reduce the amount of its share capital by the amount of the Shares so canceled; or | |
| (iv) | reduce its share capital in any manner. |
| (b) | With respect to any consolidation of issued Shares and with respect to any other action which may result in fractional Shares, the Board of Directors may settle any difficulty which may arise with regard thereto, as it deems fit, and, in connection with any such consolidation or other action which could result in fractional shares, may, without limiting its aforesaid power: |
| (i) | determine, as to the holder of Shares so consolidated, which issued Shares shall be consolidated; | |
| (ii) | issue, in contemplation of or subsequent to such consolidation or other action, Shares sufficient to preclude or remove fractional share holdings; | |
| (iii) | redeem such Shares or fractional shares sufficient to preclude or remove fractional Share holdings; | |
| (iv) | round up, round down or round to the nearest whole number, any fractional Shares resulting from the consolidation or from any other action which may result in fractional Shares; or | |
| (v) | cause the transfer of fractional Shares by certain Shareholders of the Company to other Shareholders thereof so as to most expediently preclude or remove any fractional Share holdings, and cause the transferees of such fractional Shares to pay the transferors thereof the fair value thereof, and the Board of Directors is hereby authorized to act in connection with such transfer, as agent for the transferors and transferees of any such fractional Shares, with full power of substitution, for the purposes of implementing the provisions of this sub-Article 8(b)(v). |
9. Issuance of Share Certificates, Replacement of Lost Certificates.
| (a) | To the extent that the Board of Directors determines that all Shares shall be certificated or, if the Board of Directors does not so determine, to the extent that any Shareholder requests a share certificate or the Company’s transfer agent so requires, share certificates shall be issued under the corporate seal of the Company or its written, typed or stamped name and shall bear the signature of one Director, the Company’s Chief Executive Officer, or any person or persons authorized therefor by the Board of Directors. Signatures may be affixed in any mechanical or electronic form, as the Board of Directors may prescribe. |
| (b) | Subject to the provisions of Article 9(a), each Shareholder shall be entitled to one numbered certificate for all of the Shares of any class registered in his or her name. Each certificate shall specify the serial numbers of the Shares represented thereby and may also specify the amount paid up thereon. The Company (as determined by an officer of the Company to be designated by the Chief Executive Officer) shall not refuse a request by a Shareholder to obtain several certificates in place of one certificate, unless such request is, in the opinion of such officer, unreasonable. Where a Shareholder has sold or transferred a portion of such Shareholder’s Shares, such Shareholder shall be entitled to receive a certificate in respect of such Shareholder’s remaining Shares, provided that the previous certificate is delivered to the Company before the issuance of a new certificate. |
| (c) | A share certificate registered in the names of two or more persons shall be delivered to the person first named in the Register of Shareholders in respect of such co-ownership. |
| (d) | A share certificate which has been defaced, lost or destroyed, may be replaced, and the Company shall issue a new certificate to replace such defaced, lost or destroyed certificate upon payment of such fee, and upon the furnishing of such evidence of ownership and such indemnity, as the Board of Directors in its discretion deems fit. |
10. Registered Holder.
Except as otherwise provided in these Articles or the Companies Law, the Company shall be entitled to treat the registered holder of each Share as the absolute owner thereof, and accordingly, shall not, except as ordered by a court of competent jurisdiction, or as required by the Companies Law, be obligated to recognize any equitable or other claim to, or interest in, such Share on the part of any other person.
11. Issuance and Repurchase of Shares.
| (a) | The unissued Shares from time to time shall be under the control of the Board of Directors (and, to the extent permitted by applicable law, any Committee thereof), which shall have the power to issue or otherwise dispose of Shares and of securities convertible or exercisable into or other rights to acquire from the Company to such persons, on such terms and conditions (including, inter alia, price, with or without premium, discount or commission, and terms relating to calls set forth in Article 13(f) hereof), and at such times, as the Board of Directors (or the Committee, as the case may be) deems fit, and the power to give to any person the option to acquire from the Company any Shares or securities convertible or exercisable into or other rights to acquire from the Company on such terms and conditions (including, inter alia, price, with or without premium, discount or commission), during such time as the Board of Directors (or the Committee, as the case may be) deems fit. |
| (b) | The Company may at any time and from time to time, subject to applicable law, repurchase or finance the purchase of any Shares or other securities issued by the Company, in such manner and under such terms as the Board of Directors shall determine, whether from any one or more Shareholders. Such purchase shall not be deemed as payment of dividends and as such, no Shareholder will have the right to require the Company to purchase his or her Shares or offer to purchase shares from any other Shareholders. |
12. Payment in Installment.
If pursuant to the terms of issuance of any Share, all or any portion of the price thereof shall be payable in installments, every such installment shall be paid to the Company on the due date thereof by the then registered holder(s) of the Share or the person(s) then entitled thereto.
13. Calls on Shares.
| (a) | The Board of Directors may, from time to time, as it, in its discretion, deems fit, make calls for payment upon Shareholders in respect of any sum (including premium) which has not been paid up in respect of Shares held by such Shareholders and which is not, pursuant to the terms of issuance of such Shares or otherwise, payable at a fixed time, and each Shareholder shall pay the amount of every call so made upon him or her (and of each installment thereof if the same is payable in installments), to the person(s) and at the time(s) and place(s) designated by the Board of Directors, as any such times may be thereafter extended and/or such person(s) or place(s) changed. Unless otherwise stipulated in the resolution of the Board of Directors (and in the notice hereafter referred to), each payment in response to a call shall be deemed to constitute a pro rata payment on account of all the Shares in respect of which such call was made. |
| (b) | Notice of any call for payment by a Shareholder shall be given in writing to such Shareholder not less than fourteen (14) days prior to the time of payment fixed in such notice, and shall specify the time and place of payment, and the person to whom such payment is to be made. Prior to the time for any such payment fixed in a notice of a call given to a Shareholder, the Board of Directors may in its absolute discretion, by notice in writing to such Shareholder, revoke such call in whole or in part, extend the time fixed for payment thereof, or designate a different place of payment or person to whom payment is to be made. In the event of a call payable in installments, only one notice thereof need be given. |
| (c) | If pursuant to the terms of issuance of a share or otherwise, an amount is made payable at a fixed time, such amount shall be payable at such time as if it were payable by virtue of a call made by the Board of Directors and for which notice was given in accordance with paragraphs (a) and (b) of this Article 13, and the provision of these Articles with regard to calls (and the non-payment thereof) shall be applicable to such amount or such installment (and the non-payment thereof). |
| (d) | Joint holders of a Share shall be jointly and severally liable to pay all calls for payment in respect of such Share and all interest payable thereon. |
| (e) | Any amount called for payment which is not paid when due shall bear interest from the date fixed for payment until actual payment thereof, at such rate (not exceeding the then prevailing debitory rate charged by leading commercial banks in Israel), and payable at such time(s) as the Board of Directors may prescribe. |
| (f) | Upon the issuance of Shares, the Board of Directors may provide for differences among the holders of such Shares as to the amounts and times for payment of calls for payment in respect of such Shares. |
14. Prepayment.
With the approval of the Board of Directors, any Shareholder may pay to the Company any amount not yet payable in respect of his or her Shares, and the Board of Directors may approve the payment by the Company of interest on any such amount until the same would be payable if it had not been paid in advance, at such rate and time(s) as may be approved by the Board of Directors. The Board of Directors may at any time cause the Company to repay all or any part of the money so advanced, without premium or penalty. Nothing in this Article 14 shall derogate from the right of the Board of Directors to make any call for payment before or after receipt by the Company of any such advance.
15. Forfeiture and Surrender.
| (a) | If any Shareholder fails to pay an amount payable by virtue of a call, installment or interest thereon as provided for in accordance herewith, on or before the day fixed for payment of the same, the Board of Directors may at any time after the day fixed for such payment, so long as such amount (or any portion thereof) or interest thereon (or any portion thereof) remains unpaid, forfeit all or any of the Shares in respect of which such payment was called for. All expenses incurred by the Company in attempting to collect any such amount or interest thereon, including, without limitation, attorneys’ fees and costs of legal proceedings, shall be added to, and shall, for all purposes (including the accrual of interest thereon) constitute a part of, the amount payable to the Company in respect of such call. |
| (b) | Upon the adoption of a resolution as to the forfeiture of a Shareholder’s Share, the Board of Directors shall cause notice thereof to be given to such Shareholder, which notice shall state that, in the event of the failure to pay the entire amount so payable by a date specified in the notice (which date shall be not less than fourteen (14) days after the date such notice is given and which may be extended by the Board of Directors), such Shares shall be ipso facto forfeited, provided, however, that, prior to such date, the Board of Directors may cancel such resolution of forfeiture, but no such cancellation shall stop the Board of Directors from adopting a further resolution of forfeiture in respect of the non-payment of the same amount. |
| (c) | Without derogating from Articles 51 and 55 hereof, whenever Shares are forfeited as herein provided, all dividends, if any, theretofore declared in respect thereof and not actually paid shall be deemed to have been forfeited at the same time. |
| (d) | The Company, by resolution of the Board of Directors, may accept the voluntary surrender of any Share. |
| (e) | Any Share forfeited or surrendered as provided herein, shall become the property of the Company as a dormant Share, and the same, subject to the provisions of these Articles, may be sold, re-issued or otherwise disposed of as the Board of Directors deems fit. |
| (f) | Any person whose Shares have been forfeited or surrendered shall cease to be a Shareholder in respect of the forfeited or surrendered Shares, but shall, notwithstanding, be liable to pay, and shall forthwith pay, to the Company, all calls, interest and expenses owing upon or in respect of such Shares at the time of forfeiture or surrender, together with interest thereon from the time of forfeiture or surrender until actual payment, at the rate prescribed in Article 13(e) above, and the Board of Directors, in its discretion, may, but shall not be obligated to, enforce or collect the payment of such amounts, or any part thereof, as it shall deem fit. In the event of such forfeiture or surrender, the Company, by resolution of the Board of Directors, may accelerate the date(s) of payment of any or all amounts then owing to the Company by the person in question (but not yet due) in respect of all Shares owned by such Shareholder, solely or jointly with another. |
| (g) | The Board of Directors may at any time, before any Share so forfeited or surrendered shall have been sold, re-issued or otherwise disposed of, nullify the forfeiture or surrender on such conditions as it deems fit, but no such nullification shall stop the Board of Directors from re-exercising its powers of forfeiture pursuant to this Article 15. |
16. Lien.
| (a) | Except to the extent the same may be waived or subordinated in writing, the Company shall have a first and paramount lien upon all the Shares registered in the name of each Shareholder (without regard to any equitable or other claim or interest in such Shares on the part of any other person), and upon the proceeds of the sale thereof, for his or her debts, liabilities and engagements to the Company arising from any amount payable by such Shareholder in respect of any unpaid or partly paid Share, whether or not such debt, liability or engagement has matured. Such lien shall extend to all dividends from time to time declared or paid in respect of such Share. Unless otherwise provided, the registration by the Company of a transfer of Shares shall be deemed to be a waiver on the part of the Company of the lien (if any) existing on such Shares immediately prior to such transfer. |
| (b) | The Board of Directors may cause the Company to sell a Share subject to such a lien when the debt, liability or engagement giving rise to such lien has matured, in such manner as the Board of Directors deems fit, but no such sale shall be made unless such debt, liability or engagement has not been satisfied within fourteen (14) days after written notice of the intention to sell shall have been served on such Shareholder, his or her executors or administrators. |
| (c) | The net proceeds of any such sale, after payment of the costs and expenses thereof or ancillary thereto, shall be applied in or toward satisfaction of the debts, liabilities or engagements of such Shareholder in respect of such Share (whether or not the same have matured), and the remaining proceeds (if any) shall be paid to the Shareholder, his or her executors, administrators or assigns. |
17. Sale After Forfeiture or Surrender or For Enforcement of Lien.
Upon any sale of a share after forfeiture or surrender or for enforcing a lien, the Board of Directors may appoint any person to execute an instrument of transfer of the Share so sold and cause the purchaser’s name to be entered in the Register of Shareholders in respect of such Share. The purchaser shall be registered as the Shareholder and shall not be bound to see to the regularity of the sale proceedings, or to the application of the proceeds of such sale, and after his or her name has been entered in the Register of Shareholders in respect of such Share, the validity of the sale shall not be impeached by any person, and the remedy of any person aggrieved by the sale shall be in damages only and against the Company exclusively.
18. Redeemable Shares.
The Company may, subject to applicable law, issue redeemable shares or other securities and redeem the same upon terms and conditions to be set forth in a written agreement between the Company and the holder of such shares or in their terms of issuance.
Transfer of Shares
19. Registration of Transfer.
No transfer of Shares shall be registered unless a proper writing or instrument of transfer (in any customary form or any other form satisfactory to the Board of Directors or an officer of the Company to be designated by the Chief Executive Officer) has been submitted to the Company (or its transfer agent), together with any share certificate(s) and such other evidence of title as the Board of Directors or an officer of the Company to be designated by the Chief Executive Officer may require. Notwithstanding anything to the contrary herein, Shares registered in the name of The Depository Trust Company or its nominee shall be transferrable in accordance with the policies and procedures of The Depository Trust Company. Until the transferee has been registered in the Register of Shareholders in respect of the Shares so transferred, the Company may continue to regard the transferor as the owner thereof. The Board of Directors, may, from time to time, prescribe a fee for the registration of a transfer, and may approve other methods of recognizing the transfer of Shares in order to facilitate the trading of the Company’s shares on the Stock Exchange.
20. Suspension of Registration.
The Board of Directors may, in its discretion to the extent it deems necessary, close the Register of Shareholders of registration of transfers of Shares for a period determined by the Board of Directors, and no registrations of transfers of Shares shall be made by the Company during any such period during which the Register of Shareholders is so closed.
Transmission of Shares
21. Decedents’ Shares.
Upon the death of a Shareholder, the Company shall recognize the custodian or administrator of the estate or executor of the will, and in the absence of such, the lawful heirs of the Shareholder, as the only holders of the right for the Shares of the deceased Shareholder, after receipt of evidence to the entitlement thereto, as determined by the Board of Directors or an officer of the Company to be designated by the Chief Executive Officer.
22. Receivers and Liquidators.
| (a) | The Company may recognize any receiver, liquidator or similar official appointed to wind-up, dissolve or otherwise liquidate a corporate Shareholder, and a trustee, manager, receiver, liquidator or similar official appointed in bankruptcy or in connection with the reorganization of, or similar proceeding with respect to a Shareholder or its properties, as being entitled to the Shares registered in the name of such Shareholder. |
| (b) | Such receiver, liquidator or similar official appointed to wind-up, dissolve or otherwise liquidate a corporate Shareholder and such trustee, manager, receiver, liquidator or similar official appointed in bankruptcy or in connection with the reorganization of, or similar proceedings with respect to a Shareholder or its properties, upon producing such evidence as the Board of Directors (or an officer of the Company to be designated by the Chief Executive Officer) may deem sufficient as to his or her authority to act in such capacity or under this Article, shall with the consent of the Board of Directors or an officer of the Company to be designated by the Chief Executive Officer (which the Board of Directors or such officer may grant or refuse in its absolute discretion), be registered as a Shareholder in respect of such Shares, or may, subject to the regulations as to transfer herein contained, transfer such Shares. |
General Meetings
23. General Meetings.
| (a) | An annual General Meeting (“Annual General Meeting”) shall be held at such time and at such place, either within or outside of the State of Israel, as may be determined by the Board of Directors. |
| (b) | All General Meetings other than Annual General Meetings shall be called “Special General Meetings”. The Board of Directors may, at its discretion, convene a Special General Meeting at such time and place, within or outside of the State of Israel, as may be determined by the Board of Directors. |
| (c) | If so determined by the Board of Directors, an Annual General Meeting or a Special General Meeting may be held through the use of any means of communication approved by the Board of Directors, provided all of the participating Shareholders can hear each other simultaneously. A resolution approved by use of means of communications as aforesaid, shall be deemed to be a resolution lawfully adopted at such general meeting and a Shareholder shall be deemed present in person at such general meeting if attending such meeting through the means of communication used at such meeting. |
24. Record Date for General Meeting.
Notwithstanding any provision of these Articles to the contrary, and to allow the Company to determine the Shareholders entitled to notice of or to vote at any General Meeting or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or grant of any rights, or entitled to exercise any rights in respect of or to take or be the subject of any other action, the Board of Directors may fix a record date for the General Meeting, which shall not be more than the maximum period and not less than the minimum period permitted by law. A determination of Shareholders of record entitled to notice of or to vote at a General Meeting shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.
25. Shareholder Proposal Request.
| (a) | Any Shareholder or Shareholders of the Company holding at least the required percentage under the Companies Law of the voting rights of the Company which entitles such Shareholder(s) to require the Company to include a matter on the agenda of a General Meeting (the “Proposing Shareholder(s)”) may request, subject to the Companies Law, that the Board of Directors include a matter on the agenda of a General Meeting to be held in the future, provided that the Board of Directors determines that the matter is appropriate to be considered at a General Meeting (a “Proposal Request”). In order for the Board of Directors to consider a Proposal Request and whether to include the matter stated therein in the agenda of a General Meeting, notice of the Proposal Request must be timely delivered in accordance with applicable law, and the Proposal Request must comply with the requirements of these Articles (including this Article 25) and any applicable law and stock exchange rules and regulations. The Proposal Request must be in writing, signed by all of the Proposing Shareholder(s) making such request, delivered, either in person or by registered mail, postage prepaid, and received by the Secretary (or, in the absence thereof, by the Chief Executive Officer of the Company). To be considered timely, a Proposal Request must be received within the time periods prescribed by applicable law. The announcement of an adjournment or postponement of a General Meeting shall not commence a new time period (or extend any time period) for the delivery of a Proposal Request as described above. In addition to any information required to be included in accordance with applicable law, a Proposal Request must include the following: (i) the name, address, telephone number, fax number and email address of the Proposing Shareholder (or each Proposing Shareholder, as the case may be) and, if an entity, the name(s) of the person(s) that controls or manages such entity; (ii) the number of Shares held by the Proposing Shareholder(s), directly or indirectly (and, if any of such Shares are held indirectly, an explanation of how they are held and by whom), which shall be in such number no less than as is required to qualify as a Proposing Shareholder, accompanied by evidence satisfactory to the Company of the record holding of such Shares by the Proposing Shareholder(s) as of the date of the Proposal Request; (iii) the matter requested to be included on the agenda of a General Meeting, all information related to such matter, the reason that such matter is proposed to be brought before the General Meeting, the complete text of the resolution that the Proposing Shareholder proposes to be voted upon at the General Meeting, and a representation that the Proposing Shareholder(s) intend to appear in person or by proxy at the meeting; (iv) a description of all arrangements or understandings between the Proposing Shareholders and any other person(s) (naming such person or persons) in connection with the matter that is requested to be included on the agenda and a declaration signed by all Proposing Shareholder(s) of whether any of them has a personal interest in the matter and, if so, a description in reasonable detail of such personal interest; (v) a description of all Derivative Transactions (as defined below) by each Proposing Shareholder(s) during the previous twelve (12) month period, including the date of the transactions and the class, series and number of securities involved in, and the material economic terms of, such Derivative Transactions; and (vi) a declaration that all of the information that is required under the Companies Law and any other applicable law and stock exchange rules and regulations to be provided to the Company in connection with such matter, if any, has been provided to the Company. The Board of Directors, may, in its discretion, to the extent it deems necessary, request that the Proposing Shareholder(s) provide additional information necessary so as to include a matter in the agenda of a General Meeting, as the Board of Directors may reasonably require. |
A “Derivative Transaction” means any agreement, arrangement, interest or understanding entered into by, or on behalf or for the benefit of, any Proposing Shareholder or any of its Affiliates or associates, whether of record or beneficial: (1) the value of which is derived in whole or in part from the value of any class or series of shares or other securities of the Company, (2) which otherwise provides any direct or indirect opportunity to gain or share in any gain derived from a change in the value of securities of the Company, (3) the effect or intent of which is to mitigate loss, manage risk or benefit of security value or price changes, or (4) which provides the right to vote or increase or decrease the voting power of, such Proposing Shareholder, or any of its Affiliates or associates, with respect to any Shares or other securities of the Company, which agreement, arrangement, interest or understanding may include, without limitation, any option, warrant, debt position, note, bond, convertible security, swap, stock appreciation right, short position, profit interest, hedge, right to dividends, voting agreement, performance-related fee or arrangement to borrow or lend Shares (whether or not subject to payment, settlement, exercise or conversion in any such class or series), and any proportionate interest of such Proposing Shareholder in the securities of the Company held by any general or limited partnership, or any limited liability company, of which such Proposing Shareholder is, directly or indirectly, a general partner or managing member.
| (b) | The information required pursuant to this Article shall be updated as of (i) the record date of the General Meeting, (ii) five business days before the General Meeting, and (iii) as of the General Meeting, and any adjournment or postponement thereof. |
| (c) | The provisions of Articles 25(a) and 25(b) shall apply, mutatis mutandis, to any matter to be included on the agenda of a Special General Meeting which is convened pursuant to a request of a Shareholder duly delivered to the Company in accordance with the Companies Law. |
26. Notice of General Meetings; Omission to Give Notice.
| (a) | The Company is not required to give notice of a General Meeting, subject to any mandatory provision of the Companies Law. |
| (b) | The accidental omission to give notice of a General Meeting to any Shareholder, or the non-receipt of notice sent to such Shareholder, shall not invalidate the proceedings at such meeting or any resolution adopted thereat. |
| (c) | No Shareholder present, in person or by proxy, at any time during a General Meeting shall be entitled to seek the cancellation or invalidation of any proceedings or resolutions adopted at such General Meeting on account of any defect in the notice of such meeting relating to the time or the place thereof, or any item acted upon at such meeting. |
| (d) | In addition to any places at which the Company may make available for review by Shareholders the full text of the proposed resolutions to be adopted at a General Meeting, as required by the Companies Law, the Company may add additional places for Shareholders to review such proposed resolutions, including an internet site. |
Proceedings at General Meetings
27. Quorum.
| (a) | No business shall be transacted at a General Meeting, or at any adjournment thereof, unless the quorum required under these Articles for such General Meeting or such adjourned meeting, as the case may be, is present when the meeting proceeds to business. |
| (b) | In the absence of contrary provisions in these Articles, the requisite quorum for any General Meeting shall be Shareholders (not in default in payment of any sum referred to in Article 13 hereof) present in person or by proxy and holding shares conferring in the aggregate at least thirty-three and one-third percent (33⅓%) of the voting power of the Company, provided, however, that if (i) such General Meeting was initiated by and convened pursuant to a resolution adopted by the Board of Directors and (ii) at the time of such General Meeting the Company is qualified to use the forms of a “foreign private issuer” under US securities laws, then the requisite quorum shall be Shareholders (not in default in payment of any sum referred to in Article 13 hereof) present in person or by proxy and holding Shares conferring in the aggregate at least ten percent (10%) of the voting power of the Company. |
| (c) | If within half an hour from the time appointed for the meeting a quorum is not present, then without any further notice the meeting shall be adjourned either (i) to the same day in the next week, at the same time and place, (ii) to such day and at such time and place as indicated in the notice of such meeting, or (iii) to such day and at such time and place as the Chairperson of the General Meeting shall determine (which may be earlier or later than the date pursuant to clause (i) above). No business shall be transacted at any adjourned meeting except business which might lawfully have been transacted at the meeting as originally called. At such adjourned meeting, if the original meeting was convened by a Shareholder pursuant to a request under Section 63 of the Companies Law, such Shareholder in addition to at least one or more Shareholder, present in person or by proxy, and holding the higher of ten percent (10%) of the voting power of the Company or the number of Shares required for making such request, shall constitute a quorum, but in any other case any Shareholder (not in default as aforesaid) present in person or by proxy, shall constitute a quorum. |
28. Chairperson of General Meeting.
The Chairperson of the Board of Directors shall preside as Chairperson of every General Meeting of the Company. If at any meeting the Chairperson is not present within fifteen (15) minutes after the time fixed for holding the meeting or is unwilling or unable to act as Chairperson, any of the following may preside as Chairperson of the meeting (and in the following order): a Director designated by the Board of Directors, the Chief Executive Officer, the Chief Financial Officer, the General Counsel, the Secretary or any person designated by any of the foregoing. If at any such meeting none of the foregoing persons is present or all are unwilling or unable to act as Chairperson, the Shareholders present (in person or by proxy) shall choose a Shareholder or its proxy present at the meeting to be Chairperson. The office of Chairperson shall not, by itself, entitle the holder thereof to vote at any General Meeting nor shall it entitle such holder to a second or casting vote (without derogating, however, from the rights of such Chairperson to vote as a Shareholder or proxy of a Shareholder if, in fact, the Chairperson is also a Shareholder or such proxy).
29. Adoption of Resolutions at General Meetings.
| (a) | Except as required by the Companies Law or these Articles, including, without limitation, Article 39 below, a resolution of the Shareholders shall be adopted if approved by the holders of a simple majority of the voting power represented at the General Meeting in person or by proxy and voting thereon, as one class, and disregarding abstentions from the count of the voting power present and voting. Without limiting the generality of the foregoing, a resolution with respect to a matter or action for which the Companies Law prescribes a higher majority or pursuant to which a provision requiring a higher majority would have been deemed to have been incorporated into these Articles, but for which the Companies Law allows these Articles to provide otherwise (including, Sections 327 and 24 of the Companies Law), shall be adopted by a simple majority of the voting power represented at the General Meeting in person or by proxy and voting thereon, as one class, and disregarding abstentions from the count of the voting power present and voting. |
| (b) | Every question submitted to a General Meeting shall be decided by a show of hands, but the Chairperson of the General Meeting may determine that a resolution shall be decided by a written ballot. A written ballot may be implemented before the proposed resolution is voted upon or immediately after the declaration by the Chairperson of the results of the vote by a show of hands. If a vote by written ballot is taken after such declaration, the results of the vote by a show of hands shall be of no effect, and the proposed resolution shall be decided by such written ballot. |
| (c) | A defect in convening or conducting a General Meeting, including a defect resulting from the non-fulfillment of any provision or condition set forth in the Companies Law or these Articles, including with regard to the manner of convening or conducting the General Meeting, shall not disqualify any resolution passed at the General Meeting and shall not affect the discussions or decisions which took place thereat. |
| (d) | A declaration by the Chairperson of the General Meeting that a resolution has been carried unanimously, or carried by a particular majority, or rejected, and an entry to that effect in the minute book of the Company, shall be prima facie evidence of the fact without proof of the number or proportion of the votes recorded in favor of or against such resolution. |
| 30. | Power to Adjourn. |
A General Meeting, the consideration of any matter on its agenda, or the resolution on any matter on its agenda, may be postponed or adjourned, from time to time and from place to place: (i) by the Chairperson of a General Meeting at which a quorum is present (and he shall do so if directed by the General Meeting, with the consent of the holders of a majority of the voting power represented in person or by proxy and voting on the question of adjournment), but no business shall be transacted at any such adjourned meeting except business which might lawfully have been transacted at the meeting as originally called, or a matter on its agenda with respect to which no resolution was adopted at the meeting originally called; or (ii) by the Board of Directors (whether prior to or at a General Meeting).
31. Voting Power.
Subject to the provisions of Article 32(a) and to any provision hereof conferring special rights as to voting, or restricting the right to vote, every Shareholder shall have one vote for each Share held by the Shareholder of record, on every resolution, without regard to whether the vote thereon is conducted by a show of hands, by written ballot, or by any other means.
32. Voting Rights.
| (a) | No Shareholder shall be entitled to vote at any General Meeting (or be counted as a part of the quorum thereat), unless all calls then payable by him or her in respect of his or her Shares in the Company have been paid. |
| (b) | A company or other corporate body being a Shareholder of the Company may duly authorize any person to be its representative at any meeting of the Company or to execute or deliver a proxy on its behalf. Any person so authorized shall be entitled to exercise on behalf of such Shareholder all the power, which the Shareholder could have exercised if it were an individual. Upon the request of the Chairperson of the General Meeting, written evidence of such authorization (in form acceptable to the Chairperson) shall be delivered to him or her. |
| (c) | Any Shareholder entitled to vote may vote either in person or by proxy (who need not be a Shareholder of the Company), or, if the Shareholder is a company or other corporate body, by representative authorized pursuant to Article (b) above. |
| (d) | If two or more persons are registered as joint holders of any Share, the vote of the senior who tenders a vote, in person or by proxy, shall be accepted to the exclusion of the vote(s) of the other joint holder(s). For the purpose of this Article 32(d), seniority shall be determined by the order of registration of the joint holders in the Register of Shareholders. |
| (e) | If a Shareholder is a minor, under protection, bankrupt or legally incompetent, or in the case of a corporation, is in receivership or liquidation, it may, subject to all other provisions of these Articles and any documents or records required to be provided under these Articles, vote through his, her or its trustees, receiver, liquidator, natural guardian or another legal guardian, as the case may be, and the persons listed above may vote in person or by proxy. |
Proxies
33. Instrument of Appointment.
(a) An instrument appointing a proxy shall be in writing and shall be substantially in the following form:
| “I | of | ||
| (Name of Shareholder) | (Address of Shareholder) | ||
| Being a shareholder of Xylo Technologies Ltd. hereby appoints | |||
| of | |||
| (Name of Proxy) | (Address of Proxy) | ||
| as my proxy to vote for me and on my behalf at the General Meeting of the Company to be held on the ___ day of _______, _______ and at any adjournment(s) thereof. | |||
| Signed this ____ day of ___________, ______. | |||
| (Signature of Appointor)” | |||
or in any usual or common form or in such other form as may be approved by the Board of Directors. Such proxy shall be duly signed by the appointor of such person’s duly authorized attorney, or, if such appointor is company or other corporate body, in the manner in which it signs documents which binds it together with a certificate of an attorney with regard to the authority of the signatories.
| (b) | Subject to the Companies Law, the original instrument appointing a proxy or a copy thereof certified by an attorney (and the power of attorney or other authority, if any, under which such instrument has been signed) shall be delivered to the Company (at its Office, at its principal place of business, or at the offices of its registrar or transfer agent, or at such place as notice of the meeting may specify) not less than forty eight (48) hours (or such shorter period as the notice shall specify) before the time fixed for such meeting. Notwithstanding the above, the Chairperson shall have the right to waive the time requirement provided above with respect to all instruments of proxies and to accept instruments of proxy until the beginning of a General Meeting. A document appointing a proxy shall be valid for every adjourned meeting of the General Meeting to which the document relates. |
34. Effect of Death of Appointer of Transfer of Share and or Revocation of Appointment.
| (a) | A vote cast in accordance with an instrument appointing a proxy shall be valid notwithstanding the prior death or bankruptcy of the appointing Shareholder (or of his or her attorney-in-fact, if any, who signed such instrument), or the transfer of the Share in respect of which the vote is cast, unless written notice of such matters shall have been received by the Company or by the Chairperson of such meeting prior to such vote being cast. |
| (b) | Subject to the Companies Law, an instrument appointing a proxy shall be deemed revoked (i) upon receipt by the Company or the Chairperson, subsequent to receipt by the Company of such instrument, of written notice signed by the person signing such instrument or by the Shareholder appointing such proxy canceling the appointment thereunder (or the authority pursuant to which such instrument was signed) or of an instrument appointing a different proxy (and such other documents, if any, required under Article 33(b) for such new appointment), provided such notice of cancellation or instrument appointing a different proxy were so received at the place and within the time for delivery of the instrument revoked thereby as referred to in Article 33(b) hereof, or (ii) if the appointing Shareholder is present in person at the meeting for which such instrument of proxy was delivered, upon receipt by the Chairperson of such meeting of written notice from such Shareholder of the revocation of such appointment, or if and when such Shareholder votes at such meeting. A vote cast in accordance with an instrument appointing a proxy shall be valid notwithstanding the revocation or purported cancellation of the appointment, or the presence in person or vote of the appointing Shareholder at a meeting for which it was rendered, unless such instrument of appointment was deemed revoked in accordance with the foregoing provisions of this Article 34(b) at or prior to the time such vote was cast. |
Board of Directors
35. Powers of the Board of Directors.
| (a) | The Board of Directors may exercise all such powers and do all such acts and things as the Board of Directors is authorized by law or as the Company is authorized to exercise and do and are not hereby or by law required to be exercised or done by the General Meeting. The authority conferred on the Board of Directors by this Article 35 shall be subject to the provisions of the Companies Law, these Articles and any regulation or resolution consistent with these Articles adopted from time to time at a General Meeting, provided, however, that no such regulation or resolution shall invalidate any prior act done by or pursuant to a decision of the Board of Directors which would have been valid if such regulation or resolution had not been adopted. |
| (b) | Without limiting the generality of the foregoing, the Board of Directors may, from time to time, set aside any amount(s) out of the profits of the Company as a reserve or reserves for any purpose(s) which the Board of Directors, in its absolute discretion, shall deem fit, including without limitation, capitalization and distribution of bonus Shares, and may invest any sum so set aside in any manner and from time to time deal with and vary such investments and dispose of all or any part thereof, and employ any such reserve or any part thereof in the business of the Company without being bound to keep the same separate from other assets of the Company, and may subdivide or re-designate any reserve or cancel the same or apply the funds therein for another purpose, all as the Board of Directors may from time to time think fit. |
36. Exercise of Powers of the Board of Directors.
| (a) | A meeting of the Board of Directors at which a quorum is present in accordance with Article 45 shall be competent to exercise all the authorities, powers and discretion vested in or exercisable by the Board of Directors. |
| (b) | A resolution proposed at any meeting of the Board of Directors shall be deemed adopted if approved by a majority of the Directors present, entitled to vote and voting thereon when such resolution is put to a vote. |
| (c) | The Board of Directors may adopt resolutions, without convening a meeting of the Board of Directors, in writing or in any other manner permitted by the Companies Law. |
| (d) | Notwithstanding anything to the contrary herein, including under Articles 36(a) and 36(b), and without derogating from any other approvals required pursuant to these Articles or applicable law, the following actions shall require the affirmative consent of at least three-quarters (3/4) of the Directors then in office and entitled to vote thereon: |
| (i) | Any resolution to enter into a merger, consolidation, acquisition, amalgamation, business combination, issue equity securities or debt securities convertible into equity or other similar transaction (collectively, a “Transaction”), in each case that would reasonably be expected to result (A) in any person (together with its Affiliates) becoming, as a result of such Transaction, a beneficial owner (as determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of fifteen percent (15%) or more of the Ordinary Shares issued and outstanding immediately following the consummation of such Transaction or (B) in the increase in the beneficial ownership of Ordinary Shares of any person (together with its Affiliates) who immediately prior to the consummation of such Transaction holds fifteen percent (15%) or more of the then issued and outstanding Ordinary Shares; |
| (ii) | Any resolution to directly or indirectly sell, assign, convey, transfer, lease or otherwise dispose, in one or series of related transactions, of all or substantially all of the assets of the Company and its subsidiaries, taken as a whole, to any person; |
| (iii) | Any resolution to effect any material change to the principal business of the Company, enter into new lines of business that are materially different from the Company’s then current line of business, or exit the then current line of business of the Company, or otherwise materially change the Company’s strategy and/or policies with respect to its main lines of business; or |
| (iv) | Any resolution to transfer the headquarters of the Company outside of Israel. |
37. Delegation of Powers.
| (a) | The Board of Directors may, subject to the provisions of the Companies Law, delegate any or all of its powers to committees (in these Articles referred to as a “Committee of the Board of Directors”, or “Committee”), each consisting of one or more persons (who may or may not be Directors), and it may from time to time revoke such delegation or alter the composition of any such Committee. Any Committee so formed shall, in the exercise of the powers so delegated, conform to any regulations imposed on it by the Board of Directors, subject to applicable law. No regulation imposed by the Board of Directors on any Committee and no resolution of the Board of Directors shall invalidate any prior act done or pursuant to a resolution by the Committee which would have been valid if such regulation or resolution of the Board of Directors had not been adopted. The meetings and proceedings of any such Committee of the Board of Directors shall, mutatis mutandis, be governed by the provisions herein contained for regulating the meetings of the Board of Directors, to the extent not superseded by any regulations adopted by the Board of Directors. Unless otherwise expressly prohibited by the Board of Directors, in delegating powers to a Committee of the Board of Directors, such Committee shall be empowered to further delegate such powers. |
| (b) | The Board of Directors may from time to time appoint a Secretary to the Company, as well as Officers, agents, employees and independent contractors, as the Board of Directors deems fit, and may terminate the service of any such person. The Board of Directors may, subject to the provisions of the Companies Law, determine the powers and duties, as well as the salaries and compensation, of all such persons. |
| (c) | The Board of Directors may from time to time, by power of attorney or otherwise, appoint any person, company, firm or body of persons to be the attorney or attorneys of the Company at law or in fact for such purposes(s) and with such powers, authorities and discretions, and for such period and subject to such conditions, as it deems fit, and any such power of attorney or other appointment may contain such provisions for the protection and convenience of persons dealing with any such attorney as the Board of Directors deems fit, and may also authorize any such attorney to delegate all or any of the powers, authorities and discretions vested in him or her. |
38. Number of Directors.
| (a) | The Board of Directors shall consist of such number of Directors (not less than three (3) nor more than six (6), including the External Directors, if any were elected) as may be fixed from time to time by resolution of the Board of Directors. |
39. Election and Removal of Directors.
| (a) | The Directors (excluding the External Directors if any were elected), shall be classified, with respect to the term for which they each severally hold office, into three classes, as nearly equal in number as practicable, hereby designated as Class I, Class II and Class III (each, a “Class”). The Board of Directors may assign members of the Board of Directors already in office to such classes at the time such classification becomes effective. |
| (i) | The term of office of the initial Class I directors shall expire at the Annual General Meeting to be held in 2023 and when their successors are elected and qualified, |
| (ii) | The term of office of the initial Class II directors shall expire at the first Annual General Meeting following the Annual General Meeting referred to in clause (i) above and when their successors are elected and qualified, and |
| (iii) | The term of office of the initial Class III directors shall expire at the first Annual General Meeting following the Annual General Meeting referred to in clause (ii) above and when their successors are elected and qualified. |
| (b) | At each Annual General Meeting, commencing with the Annual General Meeting to be held in 2023, each Nominee or Alternate Nominee (each as defined below) elected at such Annual General Meeting to serve as a Director in a Class whose term shall have expired at such Annual General Meeting shall be elected to hold office until the third Annual General Meeting next succeeding his or her election and until his or her respective successor shall have been elected and qualified. Notwithstanding anything to the contrary, each Director shall serve until his or her successor is elected and qualified or until such earlier time as such Director’s office is vacated. |
| (c) | If the number of Directors (excluding External Directors, if any were elected) that comprises the Board of Directors is hereafter changed by the Board of Directors, any newly created directorships or decrease in directorships shall be so apportioned by the Board of Directors among the classes as to make all classes as nearly equal in number as is practicable, provided that no decrease in the number of Directors constituting the Board of Directors shall shorten the term of any incumbent Director. |
| (d) | Prior to every General Meeting of the Company at which Directors are to be elected, and subject to clauses (a) and (h) of this Article, the Board of Directors (or a Committee thereof) shall select, by a resolution adopted by a majority of the Board of Directors (or such Committee), a number of persons to be proposed to the Shareholders for election as Directors at such General Meeting (the “Nominees”). |
| (e) | Any Proposing Shareholder requesting to include on the agenda of a General Meeting a nomination of a person to be proposed to the Shareholders for election as Director (such person, an “Alternate Nominee”), may so request provided that it complies with this Article 39(e), Article 25 and applicable law. Unless otherwise determined by the Board of Directors, a Proposal Request relating to an Alternate Nominee is deemed to be a matter that is appropriate to be considered only at an Annual General Meeting. In addition to any information required to be included in accordance with applicable law, such a Proposal Request shall include information required pursuant to Article 25, and shall also set forth: (i) the name, address, telephone number, fax number and email address of the Alternate Nominee and all citizenships and residencies of the Alternate Nominee; (ii) a description of all arrangements, relations or understandings during the past three (3) years, and any other material relationships, between the Proposing Shareholder(s) or any of its Affiliates and each Alternate Nominee; (iii) a declaration signed by the Alternate Nominee that he or she consents to be named in the Company’s notices and proxy materials and on the Company’s proxy card relating to the General Meeting, if provided or published, and that he or she, if elected, consents to serve on the Board of Directors and to be named in the Company’s disclosures and filings; (iv) a declaration signed by each Alternate Nominee as required under the Companies Law and any other applicable law and stock exchange rules and regulations for the appointment of such an Alternate Nominee and an undertaking that all of the information that is required under law and stock exchange rules and regulations to be provided to the Company in connection with such an appointment has been provided (including, information in respect of the Alternate Nominee as would be provided in response to the applicable disclosure requirements under Form 20-F (or Form 10-K, if applicable) or any other applicable form prescribed by the U.S. Securities and Exchange Commission (the “SEC”)); (v) a declaration made by the Alternate Nominee of whether he or she meets the criteria for an independent director and, if applicable, External Director of the Company under the Companies Law and/or under any applicable law, regulation or stock exchange rules, and if not, then an explanation of why not; and (vi) any other information required at the time of submission of the Proposal Request by applicable law, regulations or stock exchange rules. In addition, the Proposing Shareholder(s) and each Alternate Nominee shall promptly provide any other information reasonably requested by the Company, including a duly completed director and officer questionnaire, in such form as may be provided by the Company, with respect to each Alternate Nominee. The Board of Directors may refuse to acknowledge the nomination of any person not made in compliance with the foregoing. The Company shall be entitled to publish any information provided by a Proposing Shareholder or Alternate Nominee pursuant to this Article 39(e) and Article 25, and the Proposing Shareholder and Alternate Nominee shall be responsible for the accuracy and completeness thereof. |
| (f) | The Nominees or Alternate Nominees shall be elected by a resolution adopted at the General Meeting at which they are subject to election. Notwithstanding Articles 25(a) and 25(c), in the event of a Contested Election, the method of calculation of the votes and the manner in which the resolutions will be presented to the General Meeting shall be determined by the Board of Directors in its discretion. In the event that the Board of Directors does not or is unable to make a determination on such matter, then the method described in clause (ii) below shall apply. The Board of Directors may consider, among other things, the following methods: (i) election of competing slates of Director nominees (determined in a manner approved by the Board of Directors) by a majority of the voting power represented at the General Meeting in person or by proxy and voting on such competing slates, (ii) election of individual Directors by a plurality of the voting power represented at the General Meeting in person or by proxy and voting on the election of Directors (which shall mean that the nominees receiving the largest number of “for” votes will be elected in such Contested Election), (iii) election of each nominee by a majority of the voting power represented at the General Meeting in person or by proxy and voting on the election of Directors, provided that if the number of such nominees exceeds the number of Directors to be elected, then as among such nominees the election shall be by plurality of the voting power as described above, and (iv) such other method of voting as the Board of Directors deems appropriate, including use of a “universal proxy card” listing all Nominees and Alternate Nominees by the Company. For the purposes of these Articles, election of Directors at a General Meeting shall be considered a “Contested Election” if the aggregate number of Nominees and Alternate Nominees at such meeting exceeds the total number of Directors to be elected at such meeting, with the determination thereof being made by the Secretary (or, in the absence thereof, by the Chief Executive Officer of the Company) as of the close of the applicable notice of nomination period under Article 25 or under applicable law, based on whether one or more notice(s) of nomination were timely filed in accordance with Article 25, this Article 39 and applicable law; provided, however, that the determination that an election is a Contested Election shall not be determinative as to the validity of any such notice of nomination; and provided, further, that, if, prior to the time the Company mails its initial proxy statement in connection with such election of Directors, one or more notices of nomination of an Alternate Nominee are withdrawn such that the number of candidates for election as Director no longer exceeds the number of Directors to be elected, the election shall not be considered a Contested Election. Shareholders shall not be entitled to cumulative voting in the election of Directors, except to the extent specifically set forth in this clause (f). |
| (g) | Notwithstanding anything to the contrary in these Articles, the election, qualification, removal or dismissal of External Directors, if so elected, shall be only in accordance with the applicable provisions set forth in the Companies Law. |
40. Commencement of Directorship.
Without derogating from Article 39, the term of office of a Director shall commence as of the date of his or her appointment or election, or on a later date if so specified in his or her appointment or election.
41. Continuing Directors in the Event of Vacancies.
The Board of Directors (and, if so determined by the Board of Directors, the General Meeting) may at any time and from time to time appoint any person as a Director to fill a vacancy (whether such vacancy is due to a Director no longer serving or due to the number of Directors serving being less than the maximum number stated in Article 38 hereof). In the event of one or more such vacancies in the Board of Directors, the continuing Directors may continue to act in every matter, provided, however, that if the number of Directors serving is less than the minimum number provided for pursuant to Article 38 hereof, they may only act in an emergency or to fill the office of a Director which has become vacant up to a number equal to the minimum number provided for pursuant to Article 38 hereof, or in order to call a General Meeting of the Company for the purpose of electing Directors to fill any or all vacancies. The office of a Director that was appointed by the Board of Directors to fill any vacancy shall only be for the remaining period of time during which the Director whose service has ended was filled would have held office, or in case of a vacancy due to the number of Directors serving being less than the maximum number stated in Article 38 hereof the Board of Directors shall determine at the time of appointment the class pursuant to Article 39 to which the additional Director shall be assigned.
42. Vacation of Office.
The office of a Director shall be vacated and he shall be dismissed or removed:
| (a) | ipso facto, upon his or her death; |
| (b) | if he or she is prevented by applicable law from serving as a Director; |
| (c) | if the Board of Directors determines that due to his or her mental or physical state he or she is unable to serve as a director; |
| (d) | if his or her directorship expires pursuant to these Articles and/or applicable law; |
| (e) | by a resolution adopted at an Annual General Meeting by a majority of at least 65% of the total voting power of the Shares (with such removal becoming effective on the date fixed in such resolution); |
| (f) | by his or her written resignation, such resignation becoming effective on the date fixed therein, or upon the delivery thereof to the Company, whichever is later; or |
| (g) | with respect to an External Director, if so elected, and notwithstanding anything to the contrary herein, only pursuant to applicable law. |
43. Conflict of Interests; Approval of Related Party Transactions.
| (a) | Subject to the provisions of applicable law and these Articles, no Director shall be disqualified by virtue of his or her office from holding any office or place of profit in the Company or in any company in which the Company shall be a Shareholder or otherwise interested, or from contracting with the Company as vendor, purchaser or otherwise, nor shall any such contract, or any contract or arrangement entered into by or on behalf of the Company in which any Director shall be in any way interested, be avoided, nor, other than as required under the Companies Law, shall any Director be liable to account to the Company for any profit arising from any such office or place of profit or realized by any such contract or arrangement by reason only of such Director’s holding that office or of the fiduciary relations thereby established, but the nature of his or her interest, as well as any material fact or document, must be disclosed by him or her at the meeting of the Board of Directors at which the contract or arrangement is first considered, if his or her interest then exists, or, in any other case, at no later than the first meeting of the Board of Directors after the acquisition of his or her interest. |
| (b) | Subject to the Companies Law and these Articles, a transaction between the Company and an Office Holder, and a transaction between the Company and another entity in which an Office Holder of the Company has a personal interest, in each case, which is not an Extraordinary Transaction (as defined by the Companies Law), shall require only approval by the Board of Directors or a Committee of the Board of Directors. Such authorization, as well as the actual approval, may be for a particular transaction or more generally for specific type of transactions. |
| (c) | Notwithstanding anything to the contrary in these Articles, the Company shall not engage in any Business Combination (as defined below) with any Shareholder and/or any of its Affiliates and/or investors for a period of three years following (i) with respect to any Shareholder holding as of the Effective Time fifteen percent (15%) or more of the voting power of the Shares, the Effective Time and (ii) with respect to all Shareholders, each time as such Shareholder and/or any of its Affiliates and/or investors become(s) (other than due to a buyback, redemption or cancellation of shares by the Company) the holder(s) (beneficially or of record) of fifteen percent (15%) or more of the issued and outstanding voting power of the Shares (the “Threshold” and such shareholder, an “Interested Shareholder”), except if the Board of Directors approves either the Business Combination or the transaction which resulted in such Shareholder and/or any of its Affiliates and/or investors becoming an Interested Shareholder prior to consummation of a Business Combination. As used in this Article 43 only, “Business Combination” means (i) a merger or consolidation of the Company in which the holders of a majority of the Ordinary Shares issued and outstanding immediately prior to the consummation of such transaction hold immediately following the consummation of such transaction less than 50% of the issued and outstanding share capital of the surviving, acquiring or resulting company (or if the surviving, acquiring or resulting company is a wholly owned subsidiary of another company immediately following the consummation of such transaction, the parent company of such surviving, acquiring or resulting company) or (ii) a disposition of assets of the Company with an aggregate market value equal to 10% or more of the Company’s assets or of its outstanding shares. |
Proceedings of the Board of Directors
44. Meetings.
| (a) | The Board of Directors may meet and adjourn its meetings and otherwise regulate such meetings and proceedings as the Board of Directors thinks fit. |
| (b) | A meeting of the Board of Directors shall be convened by the Secretary upon instruction of the Chairperson or upon a request of at least two (2) Directors which is submitted to the Chairperson or in any event that such meeting is required by the provisions of the Companies Law. In the event that the Chairperson does not instruct the Secretary to convene a meeting upon a request of at least two (2) Directors within seven (7) days of such request, then such two (2) Directors may convene a meeting of the Board of Directors. Any meeting of the Board of Directors shall be convened upon not less than two (2) days’ notice, unless such notice is waived in writing by all of the Directors as to a particular meeting or by their attendance at such meeting or unless the matters to be discussed at such meeting are of such urgency and importance that notice is reasonably determined by the Chairperson as ought to be waived or shortened under the circumstances. |
| (c) | Notice of any such meeting shall be given orally, by telephone, in writing or by mail, facsimile, email or such other means of delivery of notices as the Company may apply, from time to time. |
| (d) | Notwithstanding anything to the contrary herein, failure to deliver notice to a Director of any such meeting in the manner required hereby may be waived by such Director, and a meeting shall be deemed to have been duly convened notwithstanding such defective notice if such failure or defect is waived prior to action being taken at such meeting, by all Directors entitled to participate at such meeting to whom notice was not duly given as aforesaid. Without derogating from the foregoing, no Director present at any time during a meeting of the Board of Directors shall be entitled to seek the cancellation or invalidation of any proceedings or resolutions adopted at such meeting on account of any defect in the notice of such meeting relating to the date, time or the place thereof or the convening of the meeting. |
45. Quorum.
Until otherwise unanimously decided by the Board of Directors, a quorum at a meeting of the Board of Directors shall be constituted by the presence in person or by any means of communication of a majority of the Directors then in office who are lawfully entitled to participate and vote in the meeting. No business shall be transacted at a meeting of the Board of Directors unless the requisite quorum is present (in person or by any means of communication on the condition that all participating Directors can hear each other simultaneously) when the meeting proceeds to business. If within thirty (30) minutes from the time appointed for a meeting of the Board of Directors a quorum is not present, the meeting shall stand adjourned at the same place and time forty-eight (48) hours thereafter unless the Chairperson has determined that there is such urgency and importance that a shorter period is required under the circumstances. If an adjourned meeting is convened in accordance with the foregoing and a quorum is not present within thirty (30) minutes of the announced time, the requisite quorum at such adjourned meeting shall be, any two (2) Directors, if the number of Directors then serving is up to five (5), and any three (3) Directors, if the number of Directors then serving is more than five (5), in each case who are lawfully entitled to participate in the meeting and who are present at such adjourned meeting. At an adjourned meeting of the Board of Directors the only matters to be considered shall be those matters which might have been lawfully considered at the meeting of the Board of Directors originally called if a requisite quorum had been present, and the only resolutions to be adopted are such types of resolutions which could have been adopted at the meeting of the Board of Directors originally called.
46. Chairperson of the Board of Directors.
The Board of Directors shall, from time to time, elect one of its members to be the Chairperson of the Board of Directors, remove such Chairperson from office and appoint in his or her place. The Chairperson of the Board of Directors shall preside at every meeting of the Board of Directors, but if there is no such Chairperson, or if at any meeting he is not present within fifteen (15) minutes of the time fixed for the meeting or if he is unwilling to take the chair, the Directors present shall choose one of the Directors present at the meeting to be the Chairperson of such meeting. The office of Chairperson of the Board of Directors shall not, by itself, entitle the holder to a second or casting vote.
47. Validity of Acts Despite Defects.
All acts done or transacted at any meeting of the Board of Directors, or of a Committee of the Board of Directors, or by any person(s) acting as Director(s), shall, notwithstanding that it may afterwards be discovered that there was some defect in the appointment of the participants in such meeting or any of them or any person(s) acting as aforesaid, or that they or any of them were disqualified, be as valid as if there were no such defect or disqualification.
Chief Executive Officer
48. Chief Executive Officer.
The Board of Directors shall from time to time appoint one or more persons, whether or not Directors, as Chief Executive Officer of the Company who shall have the powers and authorities set forth in the Companies Law, and may confer upon such person(s), and from time to time modify or revoke, such titles and such duties and authorities of the Board of Directors as the Board of Directors may deem fit, subject to such limitations and restrictions as the Board of Directors may from time to time prescribe. Such appointment(s) may be either for a fixed term or without any limitation of time, and the Board of Directors may from time to time (subject to any additional approvals required under, and the provisions of, the Companies Law and of any contract between any such person and the Company) fix their salaries and compensation, remove or dismiss them from office and appoint another or others in his, her or their place or places.
Minutes
49. Minutes.
Any minutes of the General Meeting or the Board of Directors or any Committee thereof, if purporting to be signed by the Chairperson of the General Meeting, the Board of Directors or a Committee thereof, as the case may be, or by the Chairperson of the next succeeding General Meeting, meeting of the Board of Directors or meeting of a Committee, as the case may be, shall constitute prima facie evidence of the matters recorded therein.
Dividends
50. Declaration of Dividends.
The Board of Directors may, from time to time, declare, and cause the Company to pay dividends as permitted by the Companies Law. The Board of Directors shall determine the time for payment of such dividends and the record date for determining the shareholders entitled thereto.
51. Amount Payable by Way of Dividends.
Subject to the provisions of these Articles and subject to the rights or conditions attached at that time to any Share in the capital of the Company granting preferential, special or deferred rights or not granting any rights with respect to dividends, any dividend paid by the Company shall be allocated among the Shareholders (not in default in payment of any sum referred to in Article 13 hereof) entitled thereto on a pari passu basis in proportion to their respective holdings of the issued and outstanding Shares in respect of which such dividends are being paid.
52. Interest.
No dividend shall carry interest as against the Company.
53. Payment in Specie.
If so declared by the Board of Directors, a dividend declared in accordance with Article 50 may be paid, in whole or in part, by the distribution of specific assets of the Company or by distribution of paid up Shares, debentures or other securities of the Company or of any other companies, or in any combination thereof, in each case, the fair value of which shall be determined by the Board of Directors in good faith.
54. Implementation of Powers.
The Board of Directors may settle, as it deems fit, any difficulty arising with regard to the distribution of dividends, bonus shares or otherwise, and in particular, to issue certificates for fractions of shares and sell such fractions of shares in order to pay their consideration to those entitled thereto, or to set the value for the distribution of certain assets and to determine that cash payments shall be paid to the Shareholders on the basis of such value, or that fractions whose value is less than NIS 0.01 shall not be taken into account. The Board of Directors may instruct to pay cash or convey these certain assets to a trustee in favor of those people who are entitled to a dividend, as the Board of Directors shall deem appropriate.
55. Deductions from Dividends.
The Board of Directors may deduct from any dividend or other moneys payable to any Shareholder in respect of a Share any and all sums of money then payable by him or her to the Company on account of calls or otherwise in respect of Shares of the Company and/or on account of any other matter of transaction whatsoever.
56. Retention of Dividends.
| (a) | The Board of Directors may retain any dividend or other moneys payable or property distributable in respect of a Share on which the Company has a lien, and may apply the same in or toward satisfaction of the debts, liabilities, or engagements in respect of which the lien exists. |
| (b) | The Board of Directors may retain any dividend or other moneys payable or property distributable in respect of a Share in respect of which any person is, under Articles 21 or 22, entitled to become a Shareholder, or which any person is, under said Articles, entitled to transfer, until such person shall become a Shareholder in respect of such Share or shall transfer the same. |
57. Unclaimed Dividends.
All unclaimed dividends or other moneys payable in respect of a Share may be invested or otherwise made use of by the Board of Directors for the benefit of the Company until claimed. The payment of any unclaimed dividend or such other moneys into a separate account shall not constitute the Company a trustee in respect thereof, and any dividend unclaimed after a period of one (1) year (or such other period determined by the Board of Directors) from the date of declaration of such dividend, and any such other moneys unclaimed after a like period from the date the same were payable, shall be forfeited and shall revert to the Company, provided, however, that the Board of Directors may, at its discretion, cause the Company to pay any such dividend or such other moneys, or any part thereof, to a person who would have been entitled thereto had the same not reverted to the Company. The principal (and only the principal) of any unclaimed dividend of such other moneys shall be if claimed, paid to a person entitled thereto.
58. Mechanics of Payment.
Any dividend or other moneys payable in cash in respect of a Share, less the tax required to be withheld pursuant to applicable law, may, as determined by the Board of Directors in its sole discretion, be paid by check or warrant sent through the post to, or left at, the registered address of the person entitled thereto or by transfer to a bank account specified by such person (or, if two (2) or more persons are registered as joint holders of such Share or are entitled jointly thereto in consequence of the death or bankruptcy of the holder or otherwise, to any one of such persons or his or her bank account or the person who the Company may then recognize as the owner thereof or entitled thereto under Article 21 or 22 hereof, as applicable, or such person’s bank account), or to such person and at such other address as the person entitled thereto may by writing direct, or in any other manner the Board of Directors deems appropriate. Every such check or warrant or other method of payment shall be made payable to the order of the person to whom it is sent, or to such person as the person entitled thereto as aforesaid may direct, and payment of the check or warrant by the banker upon whom it is drawn shall be a good discharge to the Company. Every such check shall be sent at the risk of the person entitled to the money represented thereby.
Accounts
59. Books of Account.
The Company’s books of account shall be kept at the Office of the Company, or at such other place or places as the Board of Directors may think fit, and they shall always be open to inspection by all Directors. No shareholder, not being a Director, shall have any right to inspect any account or book or other similar document of the Company, except as explicitly conferred by law or authorized by the Board of Directors. The Company shall make copies of its annual financial statements available for inspection by the Shareholders at the principal offices of the Company. The Company shall not be required to send copies of its annual financial statements to the Shareholders.
60. Auditors.
The appointment, authorities, rights and duties of the auditor(s) of the Company, shall be regulated by applicable law, provided, however, that in exercising its authority to fix the remuneration of the auditor(s), the Shareholders in General Meeting may act (and in the absence of any action in connection therewith shall be deemed to have so acted) to authorize the Board of Directors (with right of delegation to a Committee thereof or to management) to fix such remuneration subject to such criteria or standards, and if no such criteria or standards are so provided, such remuneration shall be fixed in an amount commensurate with the volume and nature of the services rendered by such auditor(s). The General Meeting may, if so recommended by the Board of Directors, appoint the auditors for a period that may extend until the third Annual General Meeting after the Annual General Meeting in which the auditors were appointed.
61. Fiscal Year.
The fiscal year of the Company shall be the 12 months period ending on December 31 of each calendar year.
Supplementary Registers
62. Supplementary Registers.
Subject to and in accordance with the provisions of Sections 138 and 139 of the Companies Law, the Company may cause supplementary registers to be kept in any place outside Israel as the Board of Directors may think fit, and, subject to all applicable requirements of law, the Board of Directors may from time to time adopt such rules and procedures as it may think fit in connection with the keeping of such branch registers.
Exemption, Indemnity and Insurance
63. Insurance.
Subject to the provisions of the Companies Law with regard to such matters, the Company may enter into a contract for the insurance of the liability, in whole or in part, of any of its Office Holders imposed on such Office Holder due to an act performed by or an omission of the Office Holder in the Office Holder’s capacity as an Office Holder of the Company arising from any matter permitted by law, including the following:
| (a) | a breach of duty of care to the Company or to any other person; |
| (b) | a breach of his or her duty of loyalty to the Company, provided that the Office Holder acted in good faith and had reasonable grounds to assume that act that resulted in such breach would not prejudice the interests of the Company; |
| (c) | a financial liability imposed on such Office Holder in favor of any other person; and |
| (d) | any other event, occurrence, matters or circumstances under any law with respect to which the Company may, or will be able to, insure an Office Holder, and to the extent such law requires the inclusion of a provision permitting such insurance in these Articles, then such provision is deemed to be included and incorporated herein by reference (including, without limitation, in accordance with Section 56h(b)(1) of the Securities Law, if and to the extent applicable, and Section 50P of the Economic Competition Law). |
64. Indemnity.
| (a) | Subject to the provisions of the Companies Law, the Company may retroactively indemnify an Office Holder of the Company to the maximum extent permitted under applicable law, including with respect to the following liabilities and expenses, provided that such liabilities or expenses were imposed on such Office Holder or incurred by such Office Holder due to an act performed by or an omission of the Office Holder in such Office Holder’s capacity as an Office Holder of the Company: |
| (i) | a financial liability imposed on an Office Holder in favor of another person by any court judgment, including a judgment given as a result of a settlement or an arbitrator’s award which has been confirmed by a court; |
| (ii) | reasonable litigation expenses, including legal fees, expended by the Office Holder (A) as a result of an investigation or proceeding instituted against him or her by an authority authorized to conduct such investigation or proceeding, provided that (1) no indictment (as defined in the Companies Law) was filed against such Office Holder as a result of such investigation or proceeding; and (2) no financial liability in lieu of a criminal proceeding (as defined in the Companies Law) was imposed upon him or her as a result of such investigation or proceeding or if such financial liability was imposed, it was imposed with respect to an offense that does not require proof of criminal intent or (B) in connection with a financial sanction; |
| (iii) | reasonable litigation costs, including legal fees, expended by an Office Holder or which were imposed on an Office Holder by a court in proceedings filed against the Office Holder by the Company or in its name or by any other person or in a criminal charge in respect of which the Office Holder was acquitted or in a criminal charge in respect of which the Office Holder was convicted for an offence which did not require proof of criminal intent; and |
| (iv) | any other event, occurrence, matter or circumstance under any law with respect to which the Company may, or will be able to, indemnify an Office Holder, and to the extent such law requires the inclusion of a provision permitting such indemnity in these Articles, then such provision is deemed to be included and incorporated herein by reference (including, without limitation, in accordance with Section 56h(b)(1) of the Israeli Securities Law, if and to the extent applicable, and Section 50P(b)(2) of the RTP Law). |
| (b) | Subject to the provisions of the Companies Law, the Company may undertake to indemnify an Office Holder, in advance, with respect to those liabilities and expenses described in the following Articles: |
| (i) | Sub-Article 64(a)(i)(a)(ii) to 64(a)(iv); and |
| (ii) | Sub-Article 64(a)(i), provided that: |
| (1) | the undertaking to indemnify is limited to such events which the Directors shall deem to be foreseeable in light of the operations of the Company at the time that the undertaking to indemnify is made and for such amounts or criterion which the Directors may, at the time of the giving of such undertaking to indemnify, deem to be reasonable under the circumstances; and |
| (2) | the undertaking to indemnify shall set forth such events which the Directors shall deem to be foreseeable in light of the operations of the Company at the time that the undertaking to indemnify is made, and the amounts and/or criterion which the Directors may, at the time of the giving of such undertaking to indemnify, deem to be reasonable under the circumstances. |
65. Exemption.
Subject to the provisions of the Companies Law, the Company may, to the maximum extent permitted by law, exempt and release, in advance, any Office Holder from any liability for damages arising out of a breach of a duty of care.
66. General.
| (a) | Any amendment to the Companies Law or any other applicable law adversely affecting the right of any Office Holder to be indemnified, insured or exempt pursuant to Articles 63 to 65 and any amendments to Articles 63 to 65 shall be prospective in effect, and shall not affect the Company’s obligation or ability to indemnify, insure or exempt an Office Holder for any act or omission occurring prior to such amendment, unless otherwise provided by applicable law. |
| (b) | The provisions of Articles 63 to 65 (i) shall apply to the maximum extent permitted by law (including, the Companies Law, the Securities Law and the Economic Competition Law); and (ii) are not intended, and shall not be interpreted so as to restrict the Company, in any manner, in respect of the procurement of insurance and/or in respect of indemnification (whether in advance or retroactively) and/or exemption, in favor of any person who is not an Office Holder, including, without limitation, any employee, agent, consultant or contractor of the Company who is not an Office Holder; and/or any Office Holder to the extent that such insurance and/or indemnification is not specifically prohibited under law. |
Winding Up
67. Winding Up.
If the Company is wound up, then, subject to applicable law and to the rights of the holders of Shares with special rights upon winding up, the assets of the Company available for distribution among the Shareholders shall be distributed to them in proportion to the number of issued and outstanding Shares held by each Shareholder.
Notices
68. Notices.
| (a) | Any written notice or other document may be served by the Company upon any Shareholder either personally, by facsimile, email or other electronic transmission, or by sending it by prepaid mail (airmail if sent internationally) addressed to such Shareholder at his or her address as described in the Register of Shareholders or such other address as the Shareholder may have designated in writing for the receipt of notices and other documents. |
| (b) | Any written notice or other document may be served by any Shareholder upon the Company by tendering the same in person to the Secretary or the Chief Executive Officer of the Company at the principal office of the Company, by facsimile transmission, email or other electronic submission, or by sending it by prepaid registered mail (airmail if posted outside Israel) to the Company at its Office. |
| (c) | Any such notice or other document shall be deemed to have been served: |
| (i) | in the case of mailing, forty-eight (48) hours after it has been posted, or when actually received by the addressee if sooner than forty-eight hours after it has been posted, or |
| (ii) | in the case of overnight air courier, on the next business day following the day sent, with receipt confirmed by the courier, or when actually received by the addressee if sooner than three business days after it has been sent; |
| (iii) | in the case of personal delivery, when actually tendered in person, to such addressee; |
| (iv) | in the case of facsimile, email or other electronic transmission, on the first business day (during normal business hours in place of addressee) on which the sender receives automatic electronic confirmation by the addressee’s facsimile machine that such notice was received by the addressee or delivery confirmation from the addressee’s email or other communication server. |
| (d) | If a notice is, in fact, received by the addressee, it shall be deemed to have been duly served, when received, notwithstanding that it was defectively addressed or failed, in some other respect, to comply with the provisions of this Article 68. |
| (e) | All notices to be given to the Shareholders shall, with respect to any Share to which persons are jointly entitled, be given to whichever of such persons is named first in the Register of Shareholders, and any notice so given shall be sufficient notice to the holders of such Share. |
| (f) | Any Shareholder whose address is not described in the Register of Shareholders, and who shall not have designated in writing an address for the receipt of notices, shall not be entitled to receive any notice from the Company. |
| (g) | Notwithstanding anything to the contrary contained herein, notice by the Company of a General Meeting, containing the information required by applicable law and these Articles to be set forth therein, which is published, within the time otherwise required for giving notice of such meeting, in either or several of the following manners (as applicable) shall be deemed to be notice of such meeting duly given, for the purposes of these Articles, to any Shareholder whose address as registered in the Register of Shareholders (or as designated in writing for the receipt of notices and other documents) is located either inside or outside the State of Israel: |
| (i) | if the Company’s Shares are then listed for trading on a national securities exchange in the United States or quoted in an over-the-counter market in the United States, publication of notice of a General Meeting pursuant to a report or a schedule filed with, or furnished to, the SEC pursuant to the Securities Exchange Act of 1934, as amended; and/or |
| (ii) | on the Company’s internet site. |
| (h) | The mailing or publication date and the record date and/or date of the meeting (as applicable) shall be counted among the days comprising any notice period under the Companies Law and the regulations thereunder. |
Amendment
69. Amendment.
Any amendment of these Articles shall require, in addition and prior to the approval of the General Meeting of Shareholders in accordance with these Articles, also the approval of the Board of Directors with the affirmative vote of at least three-quarters (3/4) of the Directors then in office and entitled to vote thereon.
Forum for Adjudication of Disputes
70. Forum for Adjudication of Disputes.
| (a) | Unless the Company consents in writing to the selection of an alternative forum, the federal district courts of the United States of America, shall be the exclusive forum for the resolution of any complaint asserting a cause or causes of action arising under the U.S. Securities Act of 1933, as amended, including all causes of action asserted against any defendant to such complaint. For the avoidance of doubt, this provision is intended to benefit and may be enforced by the Company, its officers and directors, the underwriters to any offering giving rise to such complaint, and any other professional or entity whose profession gives authority to a statement made by that person or entity and who has prepared or certified any part of the documents underlying the offering. The foregoing provisions of this Article 70 shall not apply to causes of action arising under the U.S. Securities Exchange Act of 1934, as amended. |
| (b) | Unless the Company consents in writing to the selection of an alternative forum, the competent courts in Tel Aviv, Israel shall be the exclusive forum for (i) any derivative action or proceeding brought on behalf of the Company, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Company to the Company or the Company’s shareholders, or (iii) any action asserting a claim arising pursuant to any provision of the Companies Law or the Securities Law. |
| (c) | Any person or entity purchasing or otherwise acquiring or holding any interest in shares of the Company shall be deemed to have notice of and consented to the provisions of this Article 70. |
* * *
26
Exhibit 2.2
Description of Securities
The following description of Xylo Technologies Ltd.’s (the “Company”) share capital, provisions of its amended and restated articles of association as may be amended and restated from time to time, and Israeli law are summaries and do not purport to be complete, and is qualified in its entirety by reference to, the provisions of our amended and restated articles of association (the “Articles”) as well as the Israeli law and any other documents referenced in the summary and from which the summary is derived. For a description of the American Depositary Shares (“ADSs”), see “Item 12. Description of Securities Other Than Equity Securities – D. American Depositary Shares.”
Name of exchange on which registered
Our ordinary shares traded on the Tel Aviv Stock Exchange Ltd. (“TASE”) under the symbol “MDGS” from February 2006 until January 25, 2021, when we voluntarily delisted our ordinary shares from TASE.
Our ADSs are listed on Nasdaq Capital Market (“Nasdaq”) under the symbol “XYLO” with each ADS representing 15 ordinary shares. Our ADSs commenced trading on Nasdaq under the symbol “MDGS” in August 2015.
Registration number and purposes of the Company
Our registration number with the Israeli Registrar of Companies is 51-286697-1. Our purpose as set forth in our Articles is to carry on any business, and do any act, which is not prohibited by law.
Transfer of shares
Our fully paid ordinary shares are issued in registered form and may be freely transferred under our Articles, unless the transfer is restricted or prohibited by another instrument, applicable law or the rules of a stock exchange on which the shares are listed for trade. The ownership or voting of our ordinary shares by non-residents of Israel is not restricted in any way by our Articles or the laws of the State of Israel, except for ownership by nationals of certain countries that are, or have been, in a state of war with Israel.
Liability to further capital calls
Our board of directors may make, from time to time, such calls as it may deem fit upon shareholders with respect to any sum unpaid with respect to shares held by such shareholders which is not payable at a fixed time. Such shareholder has to pay the amount of every call so made upon him or her.
Election of directors
Under our Articles, our board of directors must consist of at least three and not more than six directors, including two external directors appointed as required under the Companies Law 1999-5759 (the “Companies Law”). According to our Articles, which were approved at our annual meeting on June 17, 2022, our board is divided into three classes with staggered three-year terms. At each annual general meeting of our shareholders, the election or re-election of directors following the expiration of the term of office of the directors of that class of directors shall be for a term of office that expires on the third annual general meeting following such election or re-election, Directors holds office until the annual general meeting of our shareholders for the year in which his or her term expires and until his or her successor is duly appointed, unless the tenure of such director expires earlier pursuant to the Companies Law upon the occurrence of certain events or unless removed from office by a vote of the holders of at least 65% of the total voting power of our shareholders at a general meeting of our shareholders in accordance with our Articles.
In addition, the board of directors (and, if so determined by the board of directors, the general meeting) may at any time and from time to time appoint any person as a director to fill a vacancy (whether such vacancy is due to a director no longer serving or due to the number of directors serving being less than the maximum number of six directors. In the event of one or more such vacancies in the board of directors, the continuing directors may continue to act in every matter, provided, however, that if the number of directors serving is less than three, than our board of directors may only act in an emergency or to fill the office of a director which has become vacant up to three directors, or for the purpose of convening a general meeting of the Company’s shareholders for the purpose of electing directors to fill any or all vacancies. The office of a director that was appointed by the board of directors to fill any vacancy shall only be for the remaining period of time during which the director whose service has ended was filled would have held office, or in case of a vacancy due to the number of directors serving being less than six, the board of directors shall determine at the time of appointment the class to which the additional director shall be assigned. For further information on the election and removal of directors see “Item 6. Directors, Senior Management and Employees—C. Board Practices” in our Annual Report on Form 20-F for the year ended December 31, 2023
Dividend and liquidation rights
We may declare a dividend to be paid to the holders of our ordinary shares in proportion to their respective shareholdings. Under the Companies Law, dividend distributions are determined by the board of directors and do not require the approval of the shareholders of a company unless the company’s Articles provide otherwise. Our Articles do not require shareholder approval of a dividend distribution and provide that dividend distributions may be determined by our board of directors.
Pursuant to the Companies Law, the distribution amount is limited to the greater of retained earnings or earnings generated over the previous two years, according to our then last reviewed or audited consolidated financial statements, provided that the date of the financial statements is not more than six months prior to the date of the distribution, or we may distribute dividends that do not meet such criteria only with court approval; as a company listed on an exchange outside of Israel, however, court approval is not required if the proposed distribution is in the form of an equity repurchase, provided that we notify our creditors of the proposed equity repurchase and allow such creditors an opportunity to initiate a court proceeding to review the repurchase. If within 30 days such creditors do not file an objection, then we may proceed with the repurchase without obtaining court approval. In each case, we are only permitted to distribute a dividend if our board of directors and the court, if applicable, determines that there is no reasonable concern that payment of the dividend will prevent us from satisfying our existing and foreseeable obligations as they become due.
In the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of our ordinary shares in proportion to their shareholdings. This right, as well as the right to receive dividends, 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.
Exchange controls
There are currently no Israeli currency control restrictions on remittances of dividends on our ordinary shares, proceeds from the sale of the shares or interest or other payments to non-residents of Israel, except for shareholders who are subjects of certain countries that are, or have been, in a state of war with Israel.
Shareholder meetings
Under the Companies Law, we are required to hold an annual general meeting of our shareholders once every calendar year that must be held no later than 15 months after the date of the previous annual general meeting. All general meetings other than the annual meeting of shareholders are referred to in our Articles as special general meetings. Our board of directors may call special general meetings whenever it sees fit, at such time and place, within or outside of Israel, as it may determine. In addition, the Companies Law provides that our board of directors is required to convene a special general meeting upon the written request of (i) any two of our directors or one-quarter of the members of our board of directors or (ii) as a company listed on an exchange in the U.S., one or more shareholders holding, in the aggregate, either (a) 10% or more of our outstanding issued shares and 1% or more of our outstanding voting power or (b) 10% or more of our outstanding voting power.
Under the Companies Law, one or more shareholders holding at least 1% of the voting rights at the general meeting may request that the board of directors include a matter in the agenda of a general meeting to be convened in the future, provided that it is appropriate to discuss such a matter at the general meeting. Notwithstanding the foregoing, as a company listed on an exchange outside of Israel, a matter relating to the appointment or removal of a director may only be requested by one or more shareholders holding at least 5% of the voting rights at the general meeting of the shareholders.
Subject to the provisions of the Companies Law and the regulations promulgated thereunder, shareholders entitled to participate and vote at general meetings are the shareholders of record on a date to be decided by the board of directors, which may be between four and 60 days prior to the date of the meeting. Furthermore, the Companies Law requires that resolutions regarding the following matters must be passed at a general meeting of our shareholders:
| ● | amendments to our Articles; |
| ● | appointment or termination of our auditors; |
| ● | Appointment and dismissal of external directors (if applicable); |
| ● | approval of certain related party transactions; |
| ● | director compensation and compensation of the principal executive officer (subject to certain exceptions); |
| ● | increases or reductions of our authorized share capital; |
| ● | mergers; and |
| ● | the exercise of our board of directors’ powers by a general meeting, if our board of directors is unable to exercise its powers and the exercise of any of its powers is required for our proper management. |
The Companies Law requires that a notice of any annual general meeting or special general meeting be provided to shareholders at least 21 days prior to the meeting and if the agenda of the meeting includes the appointment or removal of directors, the approval of transactions with office holders or interested or related parties, or an approval of a merger, or as otherwise required under applicable law, notice must be provided at least 35 days prior to the meeting.
Subject to the provisions of the Companies Law and the regulations promulgated thereunder, shareholders entitled to participate and vote at general meetings are the shareholders of record on a date to be decided by the board of directors.
Voting rights
All our ordinary shares have identical voting and other rights in all respects.
Quorum requirements
Pursuant to our amended and restated articles of association, holders of our ordinary shares have one vote for each ordinary share held on all matters submitted to a vote before the shareholders at a general meeting. The quorum required for our general meetings of shareholders consists of at least two shareholders, present in person or by proxy, holding at least thirty-three and one-third percent (33 and 1/3%) of the voting rights of the Company, within half an hour from the appointed time, provided, however, that if (i) such general meeting was initiated by and convened pursuant to a resolution adopted by the board of directors and (ii) at the time of such General Meeting the Company is qualified to use the forms of a “foreign private issuer” under US securities laws, then the requisite quorum shall be shareholders present in person or by proxy and holding Shares conferring in the aggregate at least ten percent (10%) of the voting power of the Company. A meeting adjourned for lack of a quorum will be adjourned to the same day of the following week at the same time and place, or to such other day, time or place (i) if such is stated in the notice of the meeting or (ii) as the chairperson of the general meeting shall determine. At the reconvened meeting, if a quorum is not present within half an hour, any number of shareholders present in person or by proxy will constitute a lawful quorum.
Vote requirements
Our Articles provide that all resolutions of our shareholders require a simple majority vote, unless otherwise required by the Companies Law or by our amended and restated articles of association. Under the Companies Law, each of (i) the approval of an extraordinary transaction with a controlling shareholder and (ii) the terms of employment or other engagement of the controlling shareholder of the company or such controlling shareholder’s relative (even if not extraordinary) requires the approval described under “Item 6. Directors, Senior Management and Employees—C. Board Practices—Fiduciary duties and approval of specified related party transactions and compensation under Israeli law—Disclosure of personal interests of a controlling shareholder and approval of transactions” in our Annual Report on Form 20-F. Certain transactions with respect to remuneration of our office holders and directors require further approvals described under “Item 6. Directors, Senior Management and Employees—C. Board Practices—Fiduciary duties and approval of specified related party transactions and compensation under Israeli law—Approval of compensation of directors and executive officers” in our Annual Report on Form 20-F. Another exception to the simple majority vote requirement is a resolution for the voluntary winding up, or an approval of a scheme of arrangement or reorganization, of the company pursuant to Section 350 of the Companies Law, which requires the approval of the majority of the shareholders voting their shares, other than abstainees, holding at least 75% of the voting rights represented at the meeting, in person, by proxy or by voting deed and voting on the resolution. Under our amended and restated articles of association, the removal of an acting director by a vote of the Company’s shareholders requires at least 65% of the voting power of the Company. In addition, certain provisions of our amended and restated articles may be amended by a majority resolution adopted by the general meeting of the Company’s shareholders, provided that such amendment was approved prior to the general meeting by at least 75% of the Company’s board of directors then in office and entitled to vote thereon.
Access to corporate records
Under the Companies Law, shareholders are provided access to minutes of our general meetings, our shareholder register and principal shareholder register, our Articles, our financial statements and any document that we are required by law to file publicly with the Israeli Companies Registrar or the Israel Securities Authority. In addition, shareholders may request to be provided with any document related to an action or transaction requiring shareholder approval under the related party transaction provisions of the Companies Law. We may deny these requests if we believe they have not been made in good faith or if such denial is necessary to protect our interest or protect a trade secret or patent.
Modification of class rights
Under the Companies Law and our Articles, the rights attached to any class of shares, such as voting, liquidation and dividend rights, may be modified or cancelled by the Company by a resolution of the general meeting of the holders of all shares as one class, without any required separate resolution of any class of shares.
Acquisitions under Israeli law
Full tender offer
A person wishing to acquire shares of an Israeli public company and who would as a result hold over 90% of the target company’s issued and outstanding share capital is required by the Companies Law to make a tender offer to all of the company’s shareholders for the purchase of all of the issued and outstanding shares of the company. A person wishing to acquire shares of a public Israeli company and who would as a result hold over 90% of the issued and outstanding share capital of a certain class of shares is required to make a tender offer to all of the shareholders who hold shares of the relevant class for the purchase of all of the issued and outstanding shares of that class. If the shareholders who do not accept the offer hold less than 5% of the issued and outstanding share capital of the company or of the applicable class, and more than half of the shareholders who do not have a personal interest in the offer accept the offer, all of the shares that the acquirer offered to purchase will be transferred to the acquirer by operation of law. However, a tender offer will also be accepted if the shareholders who do not accept the offer hold less than 2% of the issued and outstanding share capital of the company or of the applicable class of shares.
Upon a successful completion of such a full tender offer, any shareholder that was an offeree in such tender offer, whether such shareholder accepted the tender offer or not, may, within six months from the date of acceptance of the tender offer, petition an Israeli court to determine whether the tender offer was for less than fair value and that the fair value should be paid as determined by the court. However, under certain conditions, the offeror may include in the terms of the tender offer that an offeree who accepted the offer will not be entitled to petition the Israeli court as described above.
If a tender offer is not accepted in accordance with the requirements set forth above, the acquirer may not acquire shares of the company that will increase its holdings to more than 90% of the company’s issued and outstanding share capital or of the applicable class from shareholders who accepted the tender offer.
Special tender offer
The Companies Law provides that an acquisition of shares of an Israeli public company must be made by means of a special tender offer if as a result of the acquisition the purchaser would become a holder of 25% or more of the voting rights in the company. This requirement does not apply if there is already another holder of at least 25% of the voting rights in the company. Alternatively, such an acquisition may be approved pursuant to a private placement approved by the company’s shareholders with the purpose of approving the acquisition of 25% or more, or 45% or more of the company’s voting rights. Similarly, the Companies Law provides that an acquisition of shares in a public company must be made by means of a special tender offer if as a result of the acquisition the purchaser would become a holder of more than 45% of the voting rights in the company, if there is no other shareholder of the company who holds more than 45% of the voting rights in the company, subject to certain exceptions.
In the event that a special tender offer is made, a company’s board of directors is required to express its opinion on the advisability of the offer, or shall abstain from expressing any opinion if it is unable to do so, provided that it gives the reasons for its abstention. In addition, the board of directors must disclose any personal interest each member of the board of directors has in the offer or stems therefrom.
A special tender offer must be extended to all shareholders of a company, but the offeror is not required to purchase shares representing more than 5% of the voting power attached to the company’s outstanding shares, regardless of how many shares are tendered by shareholders. A special tender offer may be consummated only if (i) at least 5% of the voting power attached to the company’s outstanding shares will be acquired by the offeror and (ii) the number of shares tendered in the offer exceeds the number of shares whose holders objected to the offer (excluding the purchaser and its controlling shareholder, holders of 25% or more of the voting rights in the company or any person having a personal interest in the acceptance of the tender offer or any other person acting on their behalf, including relatives and entities under such person’s control). If a special tender offer is accepted, then the purchaser or any person or entity controlling it or under common control with the purchaser or such controlling person or entity may not make a subsequent tender offer for the purchase of shares of the target company and may not enter into a merger with the target company for a period of one year from the date of the offer, unless the purchaser or such person or entity undertook to effect such an offer or merger in the initial special tender offer.
Merger
The Companies Law permits merger transactions if approved by each party’s board of directors and, unless certain requirements described under the Companies Law are met, by a majority vote of each party’s shares, and, in the case of the target company, a majority vote of each class of its shares voted on the proposed merger at a shareholders meeting. The board of directors of a merging company is required pursuant to the Companies Law to discuss and determine whether in its opinion there exists a reasonable concern that as a result of a proposed merger, the surviving company will not be able to satisfy its obligations towards its creditors, such determination taking into account the financial status of the merging companies. If the board of directors has determined that such a concern exists, it may not approve a proposed merger.
For purposes of the shareholder vote, unless a court rules otherwise, the merger will not be deemed approved if a majority of the votes of the shares represented at the shareholders meeting that are held by parties other than the other party to the merger, or by any person (or group of persons acting in concert) who holds (or hold, as the case may be) 25% or more of the voting rights or the right to appoint 25% or more of the directors of the other party, vote against the merger. If, however, the merger involves a merger with a company’s own controlling shareholder or if the controlling shareholder has a personal interest in the merger, then the merger is instead subject to the same special majority approval that governs all extraordinary transactions with controlling shareholders (as described under “Item 6. Directors, Senior Management and Employees—C. Board Practices—Fiduciary duties and approval of specified related party transactions and compensation under Israeli law—Disclosure of personal interests of a controlling shareholder and approval of transactions” in our Annual Report on Form 20-F for the year ended December 31, 2022).
If the transaction would have been approved by the shareholders of a merging company but for the separate approval of each class or the exclusion of the votes of certain shareholders as provided above, a court may still approve the merger upon the request of holders of at least 25% of the voting rights of a company, if the court holds that the merger is fair and reasonable, taking into account the value to the parties to the merger and the consideration offered to the shareholders of the company.
Upon the request of a creditor of either party to the proposed merger, the court may delay or prevent the merger if it concludes that there exists a reasonable concern that, as a result of the merger, the surviving company will be unable to satisfy the obligations of the merging entities, and may further give instructions to secure the rights of creditors.
In addition, a merger may not be consummated unless at least 50 days have passed from the date on which a proposal for approval of the merger was filed by each party with the Israeli Registrar of Companies and at least 30 days have passed from the date on which the merger was approved by the shareholders of each party.
Borrowing powers
Pursuant to the Companies Law and our Articles, our board of directors may exercise all powers and take all actions that are not required under law or under our Articles to be exercised or taken by a certain organ of the Company, including the power to borrow money for company purposes.
Changes in capital
Our Articles enable us to increase or reduce our share capital. Any such changes are subject to the provisions of the Companies Law and must be approved by a resolution duly adopted by our shareholders at a general meeting. In addition, transactions that have the effect of reducing capital, such as the declaration and payment of dividends in the absence of sufficient retained earnings or profits, require the approval of both our board of directors and an Israeli court.
Transfer agent and registrar
Our transfer agent and registrar for our ordinary shares is Computershare Trust Company, N.A.
6
Exhibit 4.2
| Medigus Ltd. |
| 2023 Share Incentive Plan |
Unless otherwise defined, terms used herein shall have the meaning ascribed to them in Section 2 hereof.
1. PURPOSE; TYPES OF AWARDS; CONSTRUCTION.
1.1. Purpose. The purpose of this 2023 Share Incentive Plan (as amended, this “Plan”) is to afford an incentive to Service Providers of Medigus Ltd., an Israeli company (together with any successor corporation thereto, the “Company”), or any Affiliate of the Company, which now exists or hereafter is organized or otherwise becomes an Affiliate (e.g. if it is acquired by the Company or its Affiliates), to continue as Service Providers, to increase their efforts on behalf of the Company or its Affiliates and to promote the success of the Company’s business, by providing such Service Providers with opportunities to acquire a proprietary interest in the Company by the issuance of Shares or restricted Shares (“Restricted Shares”) of the Company, Options, Restricted Shares Units (“RSUs”), share appreciation rights and other Share-based Awards pursuant to Sections 11 through 13 of this Plan.
1.2. Types of Awards. This Plan is intended to enable the Company to issue Awards under various tax regimes, including:
(i) pursuant and subject to the provisions of Section 102 of the Ordinance (or the corresponding provision of any subsequently enacted statute, as amended from time to time), and all regulations and interpretations adopted by any competent authority, including the Israel Tax Authority (the “ITA”), including the Income Tax Rules (Tax Benefits in Stock Issuance to Employees) 5763-2003 or such other rules so adopted from time to time (the “Rules”) (such Awards that are intended to be (as set forth in the Award Agreement) and which qualify as such under Section 102 of the Ordinance and the Rules, “102 Awards”);
(ii) pursuant to Section 3(i) of the Ordinance or the corresponding provision of any subsequently enacted statute, as amended from time to time (such Awards, “3(i) Awards”);
(iii) Incentive Stock Options within the meaning of Section 422 of the Code, or the corresponding provision of any subsequently enacted United States federal tax statute, as amended from time to time, to be granted to Employees who are deemed to be residents of the United States, for purposes of taxation, or are otherwise subject to U.S. Federal income tax (such Awards that are intended to be (as set forth in the Award Agreement) and which qualify as an incentive stock option within the meaning of Section 422(b) of the Code, “Incentive Stock Options”);
(iv) Options not intended to be (as set forth in the Award Agreement) or which do not qualify as an Incentive Stock Option (“Nonqualified Stock Options”)
(v) Share appreciation rights; and
(vi) Restricted Shares, RSUs and other forms of Share-based Awards.
In addition to the issuance of Awards under the relevant tax regimes in the United States of America and the State of Israel, and without derogating from the generality of Section 24, this Plan contemplates issuances to Grantees in other jurisdictions or under other tax regimes with respect to which the Committee is empowered, but is not required, to make the requisite adjustments in this Plan and set forth the relevant conditions in an appendix to this Plan or in the Company’s agreement with the Grantee in order to comply with the requirements of such other tax regimes.
1.3. Construction. To the extent any provision herein conflicts with the conditions of any relevant tax law, rule or regulation which are relied upon for tax relief in respect of a particular Award to a Grantee, the Committee is empowered, but, to the extent permissible under applicable law, is not required, hereunder to determine that the provisions of such law, rule or regulation shall prevail over those of this Plan and to interpret and enforce such prevailing provisions. With respect to 102 Awards, if and to the extent any action or the exercise or application of any provision hereof or authority granted hereby is conditioned or subject to obtaining a ruling or tax determination from the ITA, to the extent required by Applicable Law, then the taking of any such action or the exercise or application of such section or authority with respect to 102 Awards shall be conditioned upon obtaining such ruling or tax determination, and, if obtained, shall be subject to any condition set forth therein; it being clarified that there is no obligation to apply for any such ruling or tax determination (which shall be in the sole discretion of the Committee) and no assurance is made that if applied any such ruling or tax determination will be obtained (or the conditions thereof).
2. DEFINITIONS.
2.1. Terms Generally. Except when otherwise indicated by the context, (i) the singular shall include the plural and the plural shall include the singular; (ii) any pronoun shall include the corresponding masculine, feminine and neuter forms; (iii) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, restated, supplemented or otherwise modified (subject to any restrictions on such amendments, restatements, supplements or modifications set forth therein or herein), (iv) references to any law, constitution, statute, treaty, regulation, rule or ordinance, including any section or other part thereof shall refer to it as amended from time to time and shall include any successor thereof, (v) reference to a “company” or “entity” shall include a, partnership, corporation, limited liability company, association, trust, unincorporated organization, or a government or agency or political subdivision thereof, and reference to a “person” shall mean any of the foregoing or an individual, (vi) the words “herein”, “hereof” and “hereunder”, and words of similar import, shall be construed to refer to this Plan in its entirety, and not to any particular provision hereof, (vii) all references herein to Sections shall be construed to refer to Sections to this Plan; (viii) the words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”; and (ix) use of the term “or” is not intended to be exclusive.
2.2. Defined Terms. The following terms shall have the meanings ascribed to them in this Section 2:
2.3. “Affiliate” shall mean, (i) with respect to any person, any other person that, directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such person (with the term “control” or “controlled by” within the meaning of Rule 405 of Regulation C under the Securities Act), including, without limitation, any Parent or Subsidiary, or (ii) Employer.
2.5. “Applicable Law” shall mean any applicable law, rule, regulation, statute, pronouncement, policy, interpretation, judgment, order or decree of any federal, provincial, state or local governmental, regulatory or adjudicative authority or agency, of any jurisdiction, and the rules and regulations of any stock exchange, over-the-counter market or trading system on which the Company’s shares are then traded or listed.
2.6. “Award” shall mean any issuance of Shares or Restricted Share, Options, RSUs, share appreciation rights and other Share-based Awards granted under this Plan.
2.7. “Board” shall mean the Board of Directors of the Company.
-
2.8. “Change in Board Event”1 shall mean any time at which individuals who, as of the Effective Date, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the Effective Date whose appointment, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board.
2.9. “Code” shall mean the United States Internal Revenue Code of 1986, and any applicable regulations promulgated thereunder, all as amended.
2.10. “Committee” shall mean a committee established or appointed by the Board to administer this Plan, subject to Section 3.1.
2.11. “Companies Law” shall mean the Israel Companies Law, 5759-1999, and the regulations promulgated thereunder, all as amended from time to time.
2.12. “Controlling Shareholder” shall have the meaning set forth in Section 32(9) of the Ordinance.
2.13. “Disability” shall mean (i) the inability of a Grantee to engage in any substantial gainful activity or to perform the major duties of the Grantee’s position with the Company or its Affiliates by reason of any medically determinable physical or mental impairment which has lasted or can be expected to last for a continuous period of not less than 12 months (or such other period as determined by the Committee), as determined by a qualified doctor acceptable to the Company, (ii) if applicable, a “permanent and total disability” as defined in Section 22(e)(3) of the Code or Section 409A(a)(2)(c)(i) of the Code, as amended from time to time, or (iii) as defined in a policy of the Company that the Committee deems applicable to this Plan, or that makes reference to this Plan, for purposes of this definition.
2.14. “Employee” shall mean any person treated as an employee (including an officer or a director who is also treated as an employee) in the records of the Company or any of its Affiliates (and in the case of 102 Awards, subject to Section 9.3 or in the case of Incentive Stock Options, who is an employee for purposes of Section 422 of the Code); provided, however, that neither service as a director nor payment of a director’s fee shall be sufficient to constitute employment for purposes of this Plan. The Company shall determine in good faith and in the exercise of its discretion whether an individual has become or has ceased to be an Employee and the effective date of such individual’s employment or termination of employment, as the case may be. For purposes of a person’s rights, if any, under this Plan as of the time of the Company’s determination, all such determinations by the Company shall be final, binding and conclusive, notwithstanding that the Company or any court of law or governmental agency subsequently makes a contrary determination.
2.15. “Employer” means, for purpose of a 102 Trustee Award, the Company or an Affiliate, Subsidiary or Parent thereof, which is an “employing company” within the meaning and subject to the conditions of Section 102(a) of the Ordinance.
2.16. “employment”, “employed” and words of similar import shall be deemed to refer to the employment of Employees or to the services of any other Service Provider, as the case may be.
2.17. “Exchange Act” shall mean the U.S. Securities Exchange Act of 1934, as amended, and all regulations, guidance and other interpretative authority issued thereunder.
| 1 | In case of a hostile takeover over the Company’s board, the Incumbent Board would be able to exercise its discretionary powers in Section 14 (including, for example, to accelerate all awards, etc.) |
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2.18. “exercise,” “exercised” and words of similar import, when referring to an Award that does not require exercise or that is settled upon vesting (such as may be the case with RSUs or Restricted Shares, if so determined in their terms), shall be deemed to refer to the vesting of such an Award (regardless of whether or not the wording included reference to vesting of such an Awards explicitly).
2.19. “Exercise Period” shall mean the period, commencing on the date of grant of an Award, during which an Award shall be exercisable, subject to any vesting provisions thereof (including any acceleration thereof, if any) and subject to the termination provisions hereof.
2.20. “Exercise Price” shall mean the exercise price for each Share covered by an Option or the purchase price for each Share covered by any other Award.
2.21. “Fair Market Value” shall mean, as of any date, the value of a Share or other securities, property or rights as determined by the Board, in its discretion, subject to the following: (i) if, on such date, the Shares are listed on any securities exchange, the closing sales price per Share on the securities exchange on which the Shares are principally traded on such date, or if no sale occurred on such date, the last day preceding such date on which a sale occurred, as reported in The Wall Street Journal or such other source as the Company deems reliable; (ii) if, on such date, the Shares are then quoted in an over-the-counter market, the average of the closing bid and asked prices for the Shares in that market on such date, or if there are no bid and asked prices on such date, the last day preceding such date on which there are bid and asked prices, as reported in The Wall Street Journal or such other source as the Company deems reliable; or (iii) if, on such date, the Shares are not then listed on a securities exchange or quoted in an over-the-counter market, or in case of any other securities, property or rights, such value as the Committee, in its sole discretion, shall determine, with full authority to determine the method for making such determination and which determination shall be conclusive and binding on all parties, and shall be made after such consultations with outside legal, accounting and other experts as the Committee may deem advisable; provided, however, that, if applicable, the Fair Market Value of the Shares shall be determined in a manner that is intended to satisfy the applicable requirements of and subject to Section 409A of the Code, and with respect to Incentive Stock Options, in a manner that is intended to satisfy the applicable requirements of and subject to Section 422 of the Code, subject to Section 422(c)(7) of the Code. The Committee shall maintain a written record of its method of determining such value. If the Shares are listed or quoted on more than one established stock exchange or over-the-counter market, the Committee shall determine the principal such exchange or market and utilize the price of the Shares on that exchange or market (determined as per the method described in clauses (i) or (ii) above, as applicable) for the purpose of determining Fair Market Value.
2.22. “Grantee” shall mean a person who has been granted an Award(s) under this Plan.
2.23. “Option” shall mean a grant of options to purchase Shares, including, for the avoidance of doubt, Incentive Stock Options and Nonqualified Stock Options.
2.24. “Ordinance” shall mean the Israeli Income Tax Ordinance (New Version) 5271-1961, and the regulations and rules (including the Rules) promulgated thereunder, all as amended from time to time.
2.25. “Parent” shall mean any company (other than the Company), which now exists or is hereafter organized, (i) in an unbroken chain of companies ending with the Company if, at the time of granting an Award, each of the companies (other than the Company) owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other companies in such chain, or (ii) if applicable and for purposes of Incentive Stock Options, that is a “parent corporation” of the Company, as defined in Section 424(e) of the Code.
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2.26. “Retirement” shall mean a Grantee’s retirement pursuant to Applicable Law or in accordance with the terms of any tax-qualified retirement plan maintained by the Company or any of its Affiliates in which the Grantee participates or is subject to.
2.27. “Securities Act” shall mean the U.S. Securities Act of 1933, and the rules and regulations promulgated thereunder, all as amended from time to time.
2.28. “Service Provider” shall mean an Employee, director, officer, consultant, advisor and any other person or entity who provides services to the Company or any Parent, Subsidiary or other Affiliate thereof. Service Providers shall include prospective Service Providers to whom Awards are granted in connection with written offers of an employment or other service relationship with the Company or any Parent, Subsidiary or any other Affiliates thereof, provided, however, that such employment or service shall have actually commenced. Notwithstanding the foregoing, unless otherwise determined by the Committee, each Service Provider shall be an “employee” as defined in the General Instructions to Form S-8 Registration Statement under the Securities Act (or any successor form thereto) at the time the Award is granted to the Service Provider.
2.29. “Share(s)” shall mean Ordinary Share(s), of no par value, of the Company (including Ordinary Shares resulting or issued as a result of share split, reverse share split, bonus shares, combination or other recapitalization events), or shares of such other class of shares of the Company as shall be designated by the Board in respect of the relevant Award(s). “Shares” include any securities or property issued or distributed with respect thereto.
2.30. “Subsidiary” shall mean any company (other than the Company), which now exists or is hereafter organized or acquired by the Company, (i) in an unbroken chain of companies beginning with the Company if, at the time of granting an Award, each of the companies other than the last company in the unbroken chain owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other companies in such chain, or (ii) if applicable and for purposes of Incentive Stock Options, that is a “subsidiary corporation” of the Company, as defined in Section 424(f) of the Code.
2.31. “tax(es)” shall mean (a) all federal, state, local or foreign taxes, charges, fees, imposts, levies or other assessments, including all income, capital gains, alternative or add-on minimum, transfer, value added tax, real and personal property, withholding, payroll, employment, escheat, social security, disability, national security, health tax, wealth surtax, stamp, registration and estimated taxes, customs duties, fees, assessments and charges of any similar kind whatsoever (including under Section 280G of the Code) or other tax of any kind whatsoever, (b) all interest, indexation differentials, penalties, fines, additions to tax or additional amounts imposed by any taxing authority in connection with any item described in clause (a), (c) any transferee or successor liability in respect of any items described in clauses (a) or (b) payable by reason of contract, assumption, transferee liability, successor liability, operation of Applicable Law, or as a result of any express or implied obligation to assume Taxes or to indemnify any other person, and (d) any liability for the payment of any amounts of the type described in clause (a) or (b) payable as a result of being a member of an affiliated, consolidated, combined, unitary or aggregate or other group for any taxable period, including under U.S. Treasury Regulations Section 1.1502-6(a) (or any predecessor or successor thereof of any analogous or similar provision under Applicable Law) or otherwise.
2.32. “Ten Percent Shareholder” shall mean a Grantee who, at the time an Award is granted to the Grantee, owns shares possessing more than ten percent (10%) of the total combined voting power of all classes of shares of the Company or any Parent or Subsidiary, within the meaning of Section 422(b)(6) of the Code.
2.33. “Trustee” shall mean the trustee appointed by the Committee to hold the Awards (and, in relation with 102 Trustee Awards, approved by the ITA), if so appointed.
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2.34. Other Defined Terms. The following terms shall have the meanings ascribed to them in the Sections set forth below:
|
Term |
Section | |||
| 102 Awards | 1.2 | (i) | ||
| 102 Capital Gains Track Awards | 9.1 | |||
| 102 Non-Trustee Awards | 9.2 | |||
| 102 Ordinary Income Track Awards | 9.1 | |||
| 102 Trustee Awards | 9.1 | |||
| 3(i) Awards | 1.2 | (ii) | ||
| Award Agreement | 6 | |||
| Cause | 6.6.4.4 | |||
| Company | 1.1 | |||
| Effective Date | 24.1 | |||
| Election | 9.2 | |||
| Eligible 102 Grantees | 9.3.1 | |||
| Incentive Stock Options | 1.2 | (iii) | ||
| Information | 16.4 | |||
| ITA | 1.1 | (i) | ||
| Merger/Sale | 14.2 | |||
| Nonqualified Stock Options | 1.2 | (iv) | ||
| Plan | 1.1 | |||
| Prior Plan | 5.2 | |||
| Pool | 5.1 | |||
| Recapitalization | 14.1 | |||
| Required Holding Period | 9.5 | |||
| Restricted Period | 11.2 | |||
| Restricted Share Agreement | 11 | |||
| Restricted Share Unit Agreement | 12 | |||
| Restricted Share | 1.1 | |||
| RSUs | 1.1 | |||
| Rules | 1.1 | (i) | ||
| Successor Corporation | 14.2.1 | |||
| Withholding Obligations | 17.5 | |||
3. ADMINISTRATION.
3.1. To the extent permitted under Applicable Law, the Company’s Amended and Restated Articles of Association (as may be amended and supplemented from time to time, the “Articles of Association”) and any other governing document of the Company, this Plan shall be administered by the Committee. In the event that the Board does not appoint or establish a committee to administer this Plan, this Plan shall be administered by the Board and, accordingly, any and all references herein to the Committee shall be construed as references to the Board. In the event that an action necessary for the administration of this Plan is required under Applicable Law to be taken by the Board without the right of delegation, or if such action or power was explicitly reserved by the Board in appointing, establishing and empowering the Committee, then such action shall be so taken by the Board. In any such event, all references herein to the Committee shall be construed as references to the Board. Even if such a Committee was appointed or established, the Board may take any actions that are stated to be vested in the Committee, and shall not be restricted or limited from exercising all rights, powers and authorities under this Plan or Applicable Law.
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3.2. The Board shall appoint the members of the Committee, may from time to time remove members from, or add members to, the Committee, and shall fill vacancies in the Committee, however caused, provided that the composition of the Committee shall at all times be in compliance with any mandatory requirements of Applicable Law, the Articles of Association and any other governing document of the Company. The Committee may select one of its members as its Chairman and shall hold its meetings at such times and places as it shall determine. The Committee may appoint a Secretary, who shall keep records of its meetings, and shall make such rules and regulations for the conduct of its business as it shall deem advisable and subject to mandatory requirements of Applicable Law.
3.3. Subject to the terms and conditions of this Plan, any mandatory provisions of Applicable Law and any provisions of any Company policy required under mandatory provisions of Applicable Law, and in addition to the Committee’s powers contained elsewhere in this Plan, the Committee shall have full authority, in its discretion, from time to time and at any time, to determine any of the following, or to recommend to the Board any of the following if it is not authorized to take such action according to Applicable Law:
(i) eligible Grantees,
(ii) grants of Awards and setting the terms and provisions of Award Agreements (which need not be identical) and any other agreements or instruments under which Awards are made, including, the number of Shares underlying each Award and the class of Shares underlying each Award (if more than one class was designated by the Board),
(iii) the time or times at which Awards shall be granted,
(iv) the terms, conditions and restrictions applicable to each Award (which need not be identical) and any Shares acquired upon the exercise or (if applicable) vesting thereof, including, (1) designating Awards under Section 1.2; (2) the vesting schedule, the acceleration thereof and terms and conditions upon which Awards may be exercised or become vested, (3) the Exercise Price, (4) the method of payment for Shares purchased upon the exercise or (if applicable) vesting of the Awards, (5) the method for satisfaction of any tax withholding obligation arising in connection with the Awards or such Shares, including by the withholding or delivery of Shares, (6) the time of the expiration of the Awards, (7) the effect of the Grantee’s termination of employment with the Company or any of its Affiliates, and (8) all other terms, conditions and restrictions applicable to the Award or the Shares not inconsistent with the terms of this Plan,
(v) to accelerate, continue, extend or defer the exercisability of any Award or the vesting thereof, including with respect to the period following a Grantee’s termination of employment or other service,
(vi) the interpretation of this Plan and any Award Agreement and the meaning, interpretation and applicability of terms referred to in Applicable Law,
(vii) policies, guidelines, rules and regulations relating to and for carrying out this Plan, and any amendment, supplement or rescission thereof, as it may deem appropriate,
(viii) to adopt supplements to, or alternative versions of, this Plan, including, without limitation, as it deems necessary or desirable to comply with the laws of, or to accommodate the tax regime or custom of, foreign jurisdictions whose citizens or residents may be granted Awards,
(ix) the Fair Market Value of the Shares or other securities property or rights,
(x) the tax track (capital gains, ordinary income track or any other track available under the Section 102 of the Ordinance) for the purpose of 102 Awards, (xi) the authorization and approval of conversion, substitution, cancellation or suspension under and in accordance with this Plan of any or all Awards or Shares,
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(xii) unless otherwise provided under the terms of this Plan, the amendment, modification, waiver or supplement of the terms of any outstanding Award (including reducing the Exercise Price of an Award), provided, however, that if such amendments increase the Exercise Price of an Award or reduce the number of Shares underlying an Award, then such amendments shall require the consent of the applicable Grantee, unless such amendment is made pursuant to the exercise of rights or authorities in accordance with Sections 14 or 24,
(xiii) without limiting the generality of the foregoing, and subject to the provisions of Applicable Law, to grant to a Grantee, who is the holder of an outstanding Award, in exchange for the cancellation of such Award, a new Award having an Exercise Price lower than that provided in the Award so canceled and containing such other terms and conditions as the Committee may prescribe in accordance with the provisions of this Plan or to set a new Exercise Price for the same Award lower than that previously provided in the Award,
(xiv) to correct any defect, supply any omission or reconcile any inconsistency in this Plan or any Award Agreement and all other determinations and take such other actions with respect to this Plan or any Award as it may deem advisable to the extent not inconsistent with the provisions of this Plan or Applicable Law, and
(xv) any other matter which is necessary or desirable for, or incidental to, the administration of this Plan and any Award thereunder.
3.4. The authority granted hereunder includes the authority to modify Awards to eligible individuals who are foreign nationals or are individuals who are employed outside the State of Israel or the United States of America, to recognize differences in local law, tax policy or custom, in order to effectuate the purposes of this Plan but without amending this Plan.
3.5. The Board and the Committee shall be free at all times to make such determinations and take such actions as they deem fit. The Board and the Committee need not take the same action or determination with respect to all Awards, with respect to certain types of Awards, with respect to all Service Providers or any certain type of Service Providers and actions and determinations may differ as among the Grantees, and as between the Grantees and any other holders of securities of the Company.
3.6. All decisions, determinations, and interpretations of the Committee, the Board and the Company under this Plan shall be final and binding on all Grantees (whether before or after the issuance of Shares pursuant to Awards), unless otherwise determined by the Committee, the Board or the Company, respectively. The Committee shall have the authority (but not the obligation) to determine the interpretation and applicability of Applicable Law to any Grantee or any Awards. No member of the Committee or the Board shall be liable to any Grantee for any action taken or determination made in good faith with respect to this Plan or any Award granted hereunder.
3.7. Any officer or authorized signatory of the Company shall have the authority to act on behalf of the Company with respect to any matter, right, obligation, determination or election which is the responsibility of or which is allocated to the Company herein, provided such person has apparent authority with respect to such matter, right, obligation, determination or election. Such person or authorized signatory shall not be liable to any Grantee for any action taken or determination made in good faith with respect to this Plan or any Award granted hereunder.
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4. ELIGIBILITY.
4.1 Awards may be granted to Service Providers of the Company or any Affiliate thereof, taking into account, at the Committee’s discretion and without an obligation to do so, the qualification under each tax regime pursuant to which such Awards are granted, subject to the limitation on the granting of Incentive Stock Options set forth in Section 8.1. A person who has been granted an Award hereunder may be granted additional Awards, if the Committee shall so determine, subject to the limitations herein. However, eligibility in accordance with this Section 4 shall not entitle any person to be granted an Award, or, having been granted an Award, to be granted an additional Award.
4.2 Awards may differ in number of Shares covered thereby, the terms and conditions applying to them or on the Grantees or in any other respect (including, that there should not be any expectation (and it is hereby disclaimed) that a certain treatment, interpretation or position granted to one shall be applied to the other, regardless of whether or not the facts or circumstances are the same or similar).
5. SHARES.
5.1. The initial number of Shares that may be issued pursuant to Awards under this Plan (the “Pool”) shall be (a) 5,000,000 Shares plus (b) any Shares underlying awards under the Prior Plan as of the Effective Date which, following the Effective Date, become available for issuance under the Plan pursuant to Section 5.2 below in all events subject to adjustment as provided in Section 14.1. Notwithstanding the foregoing, the total number of Shares that may be issued pursuant to Incentive Stock Options granted under this Plan shall be 5,000,000, subject to adjustment as provided in Section 14.1. The Board may, at its discretion, increase or reduce the number of Shares that may be issued pursuant to Awards under this Plan, at any time (provided that such reduction does not derogate from any issuance of Shares in respect of Awards then outstanding).
5.2. Any Shares (a) underlying an Award granted hereunder or an award granted under the Company’s 2013 Share Option And Incentive Plan (the “Prior Plan”) (in an amount not to exceed 4,124,089 Shares under the Prior Plan that has expired, or was cancelled, terminated, forfeited, or settled in cash in lieu of issuance of Shares, for any reason, without having been exercised; (b) if permitted by the Company, tendered to pay the Exercise Price of an Award (or the exercise price or other purchase price of any option or other award under the Prior Plan(s)), or withholding tax obligations with respect to an Award (or any awards under the Prior Plan); or (c) if permitted by the Company, subject to an Award (or any award under the Prior Plan) that are not delivered to a Grantee because such Shares are withheld to pay the Exercise Price of such Award (or any award under the Prior Plan), or withholding tax obligations with respect to such Award (or such award); shall automatically, and without any further action on the part of the Company or any Grantee, again be available for grant of Awards and for issuance upon exercise or (if applicable) vesting thereof for the purposes of this Plan (unless this Plan shall have been terminated), unless the Board determines otherwise. Such Shares may be, in whole or in part, authorized but unissued Shares, (and, subject to obtaining a ruling as it applies to 102 Awards) treasury shares (dormant shares) or otherwise Shares that shall have been or may be repurchased by the Company (to the extent permitted pursuant to the Companies Law).
5.3. Any Shares under the Pool that are not subject to outstanding or exercised Awards at the termination of this Plan shall cease to be reserved for the purpose of this Plan.
5.4. From and after the Effective Date, no further grants or awards shall be made under the Prior Plan; however, Awards made under the Prior Plan before the Effective Date shall continue in effect in accordance with their terms.
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6. TERMS AND CONDITIONS OF AWARDS.
Each Award granted pursuant to this Plan shall be evidenced by a written or electronic agreement between the Company and the Grantee or a written or electronic notice delivered by the Company (the “Award Agreement”), in substantially such form or forms and containing such terms and conditions, as the Committee shall from time to time approve. The Award Agreement shall comply with and be subject to the following general terms and conditions and the provisions of this Plan (except for any provisions applying to Awards under different tax regimes), unless otherwise specifically provided in such Award Agreement, or the terms referred to in other Sections of this Plan applying to Awards under such applicable tax regimes, or terms prescribed by Applicable Law. Award Agreements need not be in the same form and may differ in the terms and conditions included therein.
6.1. Number of Shares. Each Award Agreement shall state the number of Shares covered by the Award.
6.2. Type of Award. Each Award Agreement may state the type of Award granted thereunder, provided that the tax treatment of any Award, whether or not stated in the Award Agreement, shall be as determined in accordance with Applicable Law.
6.3. Exercise Price. Each Award Agreement shall state the Exercise Price, if applicable. Unless otherwise set forth in this Plan, an Exercise Price of an Award of less than the par value of the Shares (if shares bear a par value) shall comply with Section 304 of the Companies Law. Subject to Sections 3, 7.2 and 8.2 and to the foregoing, the Committee may reduce the Exercise Price of any outstanding Award without stockholder approval, on terms and subject to such conditions as it deems advisable. The Exercise Price shall also be subject to adjustment as provided in Section 14 hereof. The Exercise Price of any Award granted to a Grantee who is subject to U.S. federal income tax shall be determined in accordance with Section 409A of the Code.
6.4. Manner of Exercise.
6.4.1 An Award may be exercised, as to any or all Shares as to which the Award has become exercisable, (a) by written notice delivered in person or by mail (or such other methods of delivery prescribed by the Company) to the Chief Financial Officer of the Company or, if no such officer is then incumbent, to the Chief Financial Officer of the Company or to such other person as determined by the Committee, (b) by way of an exercise order submitted via the online service operated and maintained by the Company or any of its service providers, or (c) or in any other manner as the Committee shall prescribe from time to time, specifying the number of Shares with respect to which the Award is being exercised (which may be equal to or lower than the aggregate number of Shares that have become exercisable at such time, subject to the last sentence of this Section), accompanied by payment of the aggregate Exercise Price for such Shares in the manner specified in the following sentence. The Exercise Price shall be paid in full with respect to each Share, at the time of exercise and as a condition therefor, either (i) in cash, (ii) if the Company’s shares are listed for trading on any securities exchange or over-the-counter market, and if the Committee so determines, all or part of the Exercise Price and any withholding taxes may be paid by the delivery (on a form prescribed by the Company) of an irrevocable direction to a securities broker approved by the Company to sell Shares and to deliver all or part of the sales proceeds to the Company or the Trustee, (iii) if the Company’s shares are listed for trading on any securities exchange or over-the-counter market, and if the Committee so determines, all or part of the Exercise Price and any withholding taxes may be paid by the delivery (on a form prescribed by the Company) of an irrevocable direction to pledge Shares to a securities broker or lender approved by the Company, as security for a loan, and to deliver all or part of the loan proceeds to the Company or the Trustee, (iv) by applying the Cashless Exercise Mechanism set forth in Section 6.4.3 below, or (v) in such other manner as the Committee shall determine, which may include procedures for cashless exercise.
6.4.2 The application of Cashless Exercise Mechanism with respect to any 102 Awards shall be subject to obtaining a ruling from the ITA, to the extent required by Applicable Law.
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6.4.3 Unless otherwise determined by the Committee, any and all Options (other than Incentive Stock Options) may be exercised using a cashless exercise mechanism, in which case the number of the Shares to be issued by the Company upon such exercise shall be calculated pursuant to the following formula (the “Cashless Exercise Mechanism”):
X = Y * (A – B)
A
| Where: | X = | the number of Shares to be issued to the Grantee. | ||
| Y = | the number of Shares, as adjusted to the date of such calculation, underlying the number of Options being exercised. | |||
| A = | the Fair Market Value of one Share at the exercise date. | |||
| B = | the Exercise Price of the Options being exercised. | |||
Upon the completion of the calculation, if X is a negative number, then X shall be deemed to equal 0 (zero).
6.5. Term and Vesting of Awards.
6.5.1 Each Award Agreement shall provide the vesting schedule for the Award as determined by the Committee. The Committee shall have the authority to determine the vesting schedule and accelerate the vesting of any outstanding Award at such time and under such circumstances as it, in its sole discretion, deems appropriate. Unless otherwise resolved by the Committee and stated in the Award Agreement, and subject to Sections 6.6 and 6.7 hereof, Awards shall vest and become exercisable under the following schedule: twenty-five percent (25%) of the Shares covered by the Award, on the first anniversary of the vesting commencement date determined by the Committee (and in the absence of such determination, of date on which such Award was granted), and six and one-quarter percent (6.25%) of the Shares covered by the Award at the end of each subsequent three-month period thereafter over the course of the following three (3) years; provided that the Grantee remains continuously as a Service Provider of the Company or its Affiliates throughout such vesting dates.
6.5.2 The Award Agreement may contain performance goals and measurements (which, in case of 102 Trustee Awards, may, if then required, be subject to obtaining a specific tax ruling or determination from the ITA), and the provisions with respect to any Award need not be the same as the provisions with respect to any other Award. Such performance goals may include, but are not limited to, revenues, sales, operating income, earnings before interest and taxes, return on investment, earnings per share, any combination of the foregoing or rate of growth of any of the foregoing, as determined by the Committee. The Committee may adjust performance goals pursuant to Awards previously granted to take into account changes in law and accounting and tax rules and to make such adjustments as the Committee deems necessary or appropriate to reflect the inclusion or the exclusion of the impact of extraordinary or unusual items, events or circumstances.
6.5.3 The Exercise Period of an Award will be ten (10) years from the date of grant of the Award, unless otherwise determined by the Committee and stated in the Award Agreement, but subject to the vesting provisions described above and the early termination provisions set forth in Sections 6.6 and 6.7 hereof. At the expiration of the Exercise Period, any Award, or any part thereof, that has not been exercised within the term of the Award and the Shares covered thereby not paid for in accordance with this Plan and the Award Agreement shall terminate and become null and void, and all interests and rights of the Grantee in and to the same shall expire.
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6.6. Termination.
6.6.1 Unless otherwise determined by the Committee, and subject to this Section 6.6 and Section 6.7 hereof, an Award may not be exercised unless the Grantee was, since the date of grant of the Award throughout the vesting dates, and is then (at the time of exercise), a Service Provider.
6.6.2 In the event that the employment or service of a Grantee shall terminate (other than by reason of death, Disability or Retirement), such that Grantee is no longer a Service Provider, all Awards of such Grantee that are unvested at the time of such termination shall terminate on the date of such termination, and all Awards of such Grantee that are vested and exercisable at the time of such termination may be exercised within up to three (3) months after the date of such termination (or such different period as the Committee shall prescribe, in general or on a case-by-case basis), but in any event no later than the date of expiration of the Award’s term as set forth in the Award Agreement or pursuant to this Plan; provided, however, that if the Company (or its Subsidiary or other Affiliate thereof, as applicable) shall have terminated the Grantee’s employment or service for Cause (as defined below) (whether the facts or circumstances that constitute such Cause occur prior to or after termination of employment or service), or if facts or circumstances arise or are discovered with respect to the Grantee that would have constituted Cause, then all Awards theretofore granted to such Grantee (whether vested or not) shall terminate and be subject to recoupment by the Company on the date of such termination (or on such subsequent date on which such facts or circumstances arise or are discovered, as the case may be) unless otherwise determined by the Committee, and any Shares issued upon exercise or (if applicable) vesting of Awards (including other Shares or securities issued or distributed with respect thereto, and including the gross amount of any proceeds, gains or other economic benefit the Grantee actually or constructively receives upon receipt or exercise of any Award or the receipt or resale of any Shares underlying the Award), whether held by the Grantee or by the Trustee for the Grantee’s benefit, shall be deemed to be irrevocably offered for sale to the Company, any of its Affiliates or any person designated by the Company to purchase, at the Company’s election and subject to Applicable Law, either for no consideration, for the par value of such Shares (if such Shares bear a par value) or against payment of the Exercise Price previously received by the Company for such Shares upon their issuance, as the Committee deems fit, upon written notice to the Grantee at any time prior to, at or after the Grantee’s termination of employment or service. Such Shares or other securities shall be sold and transferred within 30 days from the date of the Company’s notice of its election to exercise its right. If the Grantee fails to transfer such Shares or other securities to the Company, the Company, at the decision of the Committee, shall be entitled to forfeit or repurchase such Shares and to authorize any person to execute on behalf of the Grantee any document necessary to effect such transfer, whether or not the share certificates are surrendered. The Company shall have the right and authority to effect the above either by: (i) repurchasing all of such Shares or other securities held by the Grantee or by the Trustee for the benefit of the Grantee, or designate the purchaser of all or any part of such Shares or other securities, for the Exercise Price paid for such Shares, the par value of such Shares (if such Shares bear a par value) or for no payment or consideration whatsoever, as the Committee deems fit; (ii) forfeiting all or any part of such Shares or other securities; (iii) redeeming all or any part of such Shares or other securities, for the Exercise Price paid for such Shares, the par value of such Shares (if such Shares bear a par value) or for no payment or consideration whatsoever, as the Committee deems fit; (iv) taking action in order to have all or any part of such Shares or other securities converted into deferred shares entitling their holder only to their par value (if such Shares bear a par value) upon liquidation of the Company; or (v) taking any other action which may be required in order to achieve similar results; all as shall be determined by the Committee, at its sole and absolute discretion, and the Grantee is deemed to irrevocably empower the Company or any person which may be designated by it to take any action by, in the name of or on behalf of the Grantee to comply with and give effect to such actions (including, voting such shares, filling in, signing and delivering share transfer deeds, etc.).
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6.6.3 Notwithstanding anything to the contrary, the Committee, in its absolute discretion, may, on such terms and conditions as it may determine appropriate, extend the periods for which Awards held by any Grantee may continue to vest and be exercisable; it being clarified that such Awards may lose their entitlement to certain tax benefits under Applicable Law (including, without limitation, qualification of an Award as an Incentive Stock Option) as a result of the modification of such Awards and/or in the event that the Award is exercised beyond the later of: (i) three (3) months after the date of termination of the employment or service relationship; or (ii) the applicable period under Section 6.7 below with respect to a termination of the employment or service relationship because of the death, Disability or Retirement of Grantee.
6.6.4 For purposes of this Plan:
6.6.4.1. A termination of employment or service relationship of a Grantee shall not be deemed to occur (except to the extent required by the Code with respect to the Incentive Stock Option status of an Option) in case of (i) a transition or transfer of a Grantee among the Company and its Affiliates, (ii) a change in the capacity in which the Grantee is employed or renders service to the Company or any of its Affiliates or a change in the identity of the employing or engagement entity among the Company and its Affiliates, provided, in case of the foregoing clauses (i) and (ii) above, that the Grantee has remained continuously employed by and/or in the service of the Company and its Affiliates since the date of grant of the Award and throughout the vesting period; or (iii) if the Grantee takes any unpaid leave as set forth in Section 6.8 below.
6.6.4.2. An entity or an Affiliate thereof assuming an Award or issuing in substitution thereof in a transaction to which Section 424(a) of the Code applies or in a Merger/Sale in accordance with Section 14 shall be deemed as an Affiliate of the Company for purposes of this Section 6.6, unless the Committee determines otherwise.
6.6.4.3. In the case of a Grantee whose principal employer or service recipient is a Subsidiary or other Affiliate thereof, the Grantee’s employment or service relationship shall also be deemed terminated for purposes of this Section 6.6 as of the date on which such principal employer or service recipient ceases to be a Subsidiary or other Affiliate thereof.
6.6.4.4. The term “Cause” shall mean (irrespective of, and in addition to, any definition included in any other agreement or instrument applicable to the Grantee, and unless otherwise determined by the Committee) any of the following: (i) any theft, fraud, embezzlement, dishonesty, willful misconduct, breach of fiduciary duty for personal profit, falsification of any documents or records of the Company or any of its Affiliates, felony or similar act by the Grantee (whether or not related to the Grantee’s relationship with the Company); (ii) an act of moral turpitude by the Grantee, or any act that causes significant injury to, or is otherwise adversely affecting, the reputation, business, assets, operations or business relationship of the Company (or a Subsidiary or other Affiliate thereof, when applicable); (iii) any breach by the Grantee of any material agreement with or of any material duty of the Grantee to the Company or any Subsidiary or other Affiliate thereof (including breach of confidentiality, non-disclosure, non-use non-competition or non-solicitation covenants towards the Company or any of its Affiliates) or failure to abide by code of conduct or other policies (including, without limitation, policies relating to confidentiality and reasonable workplace conduct); (iv) any act which constitutes a breach of a Grantee’s fiduciary duty towards the Company or a Subsidiary or other Affiliate thereof, including disclosure of confidential or proprietary information thereof or acceptance or solicitation to receive unauthorized or undisclosed benefits, irrespective of their nature, or funds, or promises to receive either, from individuals, consultants or corporate entities with whom the Company or a Subsidiary or other Affiliate thereof conducts business; (v) the Grantee’s unauthorized use, misappropriation, destruction, or diversion of any tangible or intangible asset or corporate opportunity of the Company or any of its Affiliates (including, without limitation, the improper use or disclosure of confidential or proprietary information); or (vi) any circumstances that constitute grounds for termination for cause under the Grantee’s employment or service agreement with the Company or Affiliate, to the extent applicable. For the avoidance of doubt, the determination as to whether a termination is for Cause for purposes of this Plan, shall be made in good faith by the Committee and shall be final and binding on the Grantee.
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Death, Disability or Retirement of Grantee.
6.7.1 If a Grantee shall die while employed by, or performing service for, the Company or any of its Affiliates, or within the three (3) month period (or such longer period of time as determined by the Board, in its discretion) after the date of termination of such Grantee’s employment or service (or within such different period as the Committee may have provided pursuant to Section 6.6 hereof), or if the Grantee’s employment or service with the Company or any of its Affiliates shall terminate by reason of Disability, all Awards theretofore granted to such Grantee may (to the extent otherwise vested and exercisable and unless earlier terminated in accordance with their terms) be exercised by the Grantee or by the Grantee’s estate or by a person who acquired the legal right to exercise such Awards by bequest or inheritance, or by a person who acquired the legal right to exercise such Awards in accordance with applicable law in the case of Disability of the Grantee, as the case may be, at any time within one (1) year (or such longer period of time as determined by the Committee, in its discretion) after the death or Disability of the Grantee (or such different period as the Committee shall prescribe), but in any event no later than the date of expiration of the Award’s term as set forth in the Award Agreement or pursuant to this Plan. In the event that an Award granted hereunder shall be exercised as set forth above by any person other than the Grantee, written notice of such exercise shall be accompanied by a certified copy of letters testamentary or proof satisfactory to the Committee of the right of such person to exercise such Award.
6.7.2 In the event that the employment or service of a Grantee shall terminate on account of such Grantee’s Retirement, all Awards of such Grantee that are exercisable at the time of such Retirement may, unless earlier terminated in accordance with their terms, be exercised at any time within the three (3) month period after the date of such Retirement (or such different period as the Committee shall prescribe).
6.8. Suspension of Vesting. Unless the Committee provides otherwise, vesting of Awards granted hereunder shall be suspended during any unpaid leave of absence, other than in the case of any (i) leave of absence which was pre-approved by the Company explicitly for purposes of continuing the vesting of Awards, or (ii) transfers between locations of the Company or any of its Affiliates, or between the Company and any of its Affiliates, or any respective successor thereof. For clarity, for purposes of this Plan, military leave, statutory maternity or paternity leave or sick leave are not deemed unpaid leave of absence, unless otherwise determined by the Committee.
6.9. Securities Law Restrictions. Except as otherwise provided in the applicable Award Agreement or other agreement between the Service Provider and the Company, if the exercise of an Award following the termination of the Service Provider’s employment or service (other than for Cause) would be prohibited at any time solely because the issuance of Shares would violate the registration requirements under the Securities Act or equivalent requirements under equivalent laws of other applicable jurisdictions, then the Award shall remain exercisable and terminate on the earlier of (i) the expiration of a period of three (3) months (or such longer period of time as determined by the Committee, in its discretion) after the termination of the Service Provider’s employment or service during which the exercise of the Award would not be in such violation, or (ii) the expiration of the term of the Award as set forth in the Award Agreement or pursuant to this Plan. In addition, unless otherwise provided in a Grantee’s Award Agreement, if the sale of any Shares received upon exercise or (if applicable) vesting of an Award following the termination of the Grantee’s employment or service (other than for Cause) would violate the Company’s insider trading policy, then the Award shall terminate on the earlier of (i) the expiration of a period equal to the applicable post-termination exercise period after the termination of the Grantee’s employment or service during which the exercise of the Award would not be in violation of the Company’s insider trading policy, or (ii) the expiration of the term of the Award as set forth in the applicable Award Agreement or pursuant to this Plan.
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6.10. Other Provisions. The Award Agreement evidencing Awards under this Plan shall contain such other terms and conditions not inconsistent with this Plan as the Committee may determine, at or after the date of grant, including provisions in connection with the restrictions on transferring the Awards or Shares covered by such Awards, which shall be binding upon the Grantees and any purchaser, assignee or transferee of any Awards, and other terms and conditions as the Committee shall deem appropriate.
7. NONQUALIFIED STOCK OPTIONS.
Awards granted pursuant to this Section 7 are intended to constitute Nonqualified Stock Options and shall be subject to the general terms and conditions specified in Section 6 hereof and other provisions of this Plan, except for any provisions of this Plan applying to Awards under different tax laws or regulations. In the event of any inconsistency or contradictions between the provisions of this Section 7 and the other terms of this Plan, this Section 7 shall prevail. However, if for any reason the Awards granted pursuant to this Section 7 (or portion thereof) does not qualify as an Incentive Stock Option, then, to the extent of such non-qualification, such Option (or portion thereof) shall be regarded as a Nonqualified Stock Option granted under this Plan. In no event will the Board, the Company or any Parent or Subsidiary or any of their respective employees or directors have any liability to Grantee (or any other person) due to the failure of the Option to qualify for any reason as an Incentive Stock Option.
7.1. Certain Limitations on Eligibility for Nonqualified Stock Options. Nonqualified Stock Options may not be granted to a Service Provider who is deemed to be a resident of the United States for purposes of taxation or who is otherwise subject to United States federal income tax unless the Shares underlying such Options constitute “service recipient stock” under Section 409A of the Code or unless such Options comply with the payment requirements of Section 409A of the Code.
7.2. Exercise Price. The Exercise Price of a Nonqualified Stock Option shall not be less than 100% of the Fair Market Value of a Share on the date of grant of such Option unless the Committee specifically indicates that the Awards will have a lower Exercise Price and the Award complies with Section 409A of the Code. Notwithstanding the foregoing, a Nonqualified Stock Option may be granted with an exercise price lower than the minimum exercise price set forth above if such Award is granted pursuant to an assumption or substitution for another option in a manner qualifying under the provisions of that complies with Section 424(a) of the Code 1.409A-1(b)(5)(v)(D) of the U.S. Treasury Regulations or any successor guidance.
8. INCENTIVE STOCK OPTIONS.
Awards granted pursuant to this Section 8 are intended to constitute Incentive Stock Options and shall be granted subject to the following special terms and conditions, the general terms and conditions specified in Section 6 hereof and other provisions of this Plan, except for any provisions of this Plan applying to Awards under different tax laws or regulations. In the event of any inconsistency or contradictions between the provisions of this Section 8 and the other terms of this Plan, this Section 8 shall prevail.
8.1. Eligibility for Incentive Stock Options. Incentive Stock Options may be granted only to Employees of the Company, or to Employees of a Parent or Subsidiary, determined as of the date of grant of such Options. An Incentive Stock Option granted to a prospective Employee upon the condition that such person become an Employee shall be deemed granted effective on the date such person commences employment, with an exercise price determined as of such date in accordance with Section 8.2.
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8.2. Exercise Price. The Exercise Price of an Incentive Stock Option shall not be less than one hundred percent (100%) of the Fair Market Value of the Shares covered by the Awards on the date of grant of such Option or such other price as may be determined pursuant to the Code. Notwithstanding the foregoing, an Incentive Stock Option may be granted with an exercise price lower than the minimum exercise price set forth above if such Award is granted pursuant to an assumption or substitution for another option in a manner that complies with the provisions of Section 424(a) of the Code.
8.3. Date of Grant. Notwithstanding any other provision of this Plan to the contrary, no Incentive Stock Option may be granted under this Plan after 10 years from the date this Plan is adopted, or the date this Plan is approved by the shareholders, whichever is earlier.
8.4. Exercise Period. No Incentive Stock Option shall be exercisable after the expiration of ten (10) years after the effective date of grant of such Award, subject to Section 8.6. No Incentive Stock Option granted to a prospective Employee may become exercisable prior to the date on which such person commences employment.
8.5. $100,000 Per Year Limitation. The aggregate Fair Market Value (determined as of the date the Incentive Stock Option is granted) of the Shares with respect to which all Incentive Stock Options granted under this Plan and all other “incentive stock option” plans of the Company, or of any Parent or Subsidiary, become exercisable for the first time by each Grantee during any calendar year shall not exceed one hundred thousand United States dollars ($100,000) with respect to such Grantee. To the extent that the aggregate Fair Market Value of Shares with respect to which such Incentive Stock Options and any other such incentive stock options are exercisable for the first time by any Grantee during any calendar year exceeds one hundred thousand United States dollars ($100,000), such options shall be treated as Nonqualified Stock Options. The foregoing shall be applied by taking options into account in the order in which they were granted. If the Code is amended to provide for a different limitation from that set forth in this Section 8.5, such different limitation shall be deemed incorporated herein effective as of the date and with respect to such Awards as required or permitted by such amendment to the Code. If an Option is treated as an Incentive Stock Option in part and as a Nonqualified Stock Option in part by reason of the limitation set forth in this Section 8.5, the Grantee may designate which portion of such Option the Grantee is exercising. In the absence of such designation, the Grantee shall be deemed to have exercised the Incentive Stock Option portion of the Option first. Separate certificates representing each such portion may be issued upon the exercise of the Option.
8.6. Ten Percent Shareholder. In the case of an Incentive Stock Option granted to a Ten Percent Shareholder, notwithstanding the foregoing provisions of this Section 8, (i) the Exercise Price shall not be less than one hundred and ten percent (110%) of the Fair Market Value of a Share on the date of grant of such Incentive Stock Option, and (ii) the Exercise Period shall not exceed five (5) years from the effective date of grant of such Incentive Stock Option.
8.7. Payment of Exercise Price. Each Award Agreement evidencing an Incentive Stock Option shall state each alternative method by which the Exercise Price thereof may be paid.
8.8. Leave of Absence. Notwithstanding Section 6.8, a Grantee’s employment shall not be deemed to have terminated if the Grantee takes any leave as set forth in Section 6.8(i); provided, however, that if any such leave exceeds three (3) months, on the day that is three (3) months following the commencement of such leave any Incentive Stock Option held by the Grantee shall cease to be treated as an Incentive Stock Option and instead shall be treated thereafter as a Nonqualified Stock Option, unless the Grantee’s right to return to employment is guaranteed by statute or contract.
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8.9. Exercise Following Termination. Notwithstanding anything else in this Plan to the contrary, Incentive Stock Options that are not exercised within three (3) months following termination of the Grantee’s employment with the Company or its Parent or Subsidiary or with a corporation (or a parent or subsidiary of such corporation) issuing or assuming an Option of such Grantee in a transaction to which Section 424(a) of the Code applies, or within one year in case of termination of the Grantee’s employment with the Company or its Parent or Subsidiary due to a Disability (within the meaning of Section 22(e)(3) of the Code), shall be deemed to be Nonqualified Stock Options.
8.10. Notice to Company of Disqualifying Disposition. Each Grantee who receives an Incentive Stock Option must agree to notify the Company in writing immediately after the Grantee makes a Disqualifying Disposition of any Shares received pursuant to the exercise of Incentive Stock Options. A “Disqualifying Disposition” is any disposition (including any sale) of such Shares before the later of (i) two years after the date the Grantee was granted the Incentive Stock Option, or (ii) one year after the date the Grantee acquired Shares by exercising the Incentive Stock Option. If the Grantee dies before such Shares are sold, these holding period requirements do not apply and no disposition of the Shares will be deemed a Disqualifying Disposition.
9. 102 AWARDS.
Awards granted pursuant to this Section 9 are intended to constitute 102 Awards and shall be granted subject to the following special terms and conditions, the general terms and conditions specified in Section 6 hereof and other provisions of this Plan, except for any provisions of this Plan applying to Awards under different tax laws or regulations. In the event of any inconsistency or contradictions between the provisions of this Section 9 and the other terms of this Plan, this Section 9 shall prevail.
9.1. Tracks. Awards granted pursuant to this Section 9 are intended to be granted pursuant to Section 102 of the Ordinance pursuant to either (i) Section 102(b)(2) or (3) thereof (as applicable), under the capital gain track (“102 Capital Gain Track Awards”), or (ii) Section 102(b)(1) thereof under the ordinary income track (“102 Ordinary Income Track Awards”, and together with 102 Capital Gain Track Awards, “102 Trustee Awards”). 102 Trustee Awards shall be granted subject to the special terms and conditions contained in this Section 9, the general terms and conditions specified in Section 6 hereof and other provisions of this Plan, except for any provisions of this Plan applying to Options under different tax laws or regulations.
9.2. Election of Track. Subject to Applicable Law, the Company may grant only one type of 102 Trustee Awards at any given time to all Grantees who are to be granted 102 Trustee Awards pursuant to this Plan, and shall file an election with the ITA regarding the type of 102 Trustee Awards it elects to grant before the date of grant of any 102 Trustee Awards (the “Election”). Such Election shall also apply to any other securities, including bonus shares, received by any Grantee as a result of holding the 102 Trustee Awards. The Company may change the type of 102 Trustee Awards that it elects to grant only after the expiration of at least 12 months from the end of the year in which the first grant was made in accordance with the previous Election, or as otherwise provided by Applicable Law. Any Election shall not prevent the Company from granting Awards, pursuant to Section 102(c) of the Ordinance without a Trustee (“102 Non-Trustee Awards”).
9.3. Eligibility for Awards.
9.3.1 Subject to Applicable Law, 102 Awards may only be granted to an “employee” within the meaning of Section 102(a) of the Ordinance (which as of the date of the adoption of this Plan means (i) individuals employed by an Israeli company being the Company or any of its Affiliates, and (ii) individuals who are serving and are engaged personally (and not through an entity) as “office holders” by such an Israeli company), but may not be granted to a Controlling Shareholder (“Eligible 102 Grantees”). Eligible 102 Grantees may receive only 102 Awards, which may either be granted to a Trustee or granted under Section 102 of the Ordinance without a Trustee.
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9.4. 102 Award Grant Date.
9.4.1 Each 102 Award will be deemed granted on the date determined by the Committee, subject to Section 9.4.2, provided that (i) the Grantee has signed all documents required by the Company or pursuant to Applicable Law, and (ii) with respect to 102 Trustee Award, the Company has provided all applicable documents to the Trustee in accordance with the guidelines published by the ITA, and if an agreement is not signed and delivered by the Grantee within 90 days from the date determined by the Committee (subject to Section 9.4.2), then such 102 Trustee Award shall be deemed granted on such later date as such agreement is signed and delivered and on which the Company has provided all applicable documents to the Trustee in accordance with the guidelines published by the ITA. In the case of any contradiction, this provision and the date of grant determined pursuant hereto shall supersede and be deemed to amend any date of grant indicated in any corporate resolution or Award Agreement.
9.4.2 Unless otherwise permitted by the Ordinance, any grants of 102 Trustee Awards that are made on or after the date of the adoption of this Plan or an amendment to this Plan, as the case may be, that may become effective only at the expiration of thirty (30) days after the filing of this Plan or any amendment thereof (as the case may be) with the ITA in accordance with the Ordinance shall be conditional upon the expiration of such 30-day period, such condition shall be read and is incorporated by reference into any corporate resolutions approving such grants and into any Award Agreement evidencing such grants (whether or not explicitly referring to such condition), and the date of grant shall be at the expiration of such 30-day period, whether or not the date of grant indicated therein corresponds with this Section. In the case of any contradiction, this provision and the date of grant determined pursuant hereto shall supersede and be deemed to amend any date of grant indicated in any corporate resolution or Award Agreement.
9.5. 102 Trustee Awards.
9.5.1 Each 102 Trustee Award, each Share issued pursuant to the exercise of any 102 Trustee Award, and any rights granted thereunder, including bonus shares, shall be issued to and registered in the name of the Trustee and shall be held in trust for the benefit of the Grantee for the requisite period prescribed by the Ordinance (the “Required Holding Period”). In the event that the requirements under Section 102 of the Ordinance to qualify an Award as a 102 Trustee Award are not met, then the Award may be treated as a 102 Non-Trustee Award or 3(9) Award, all in accordance with the provisions of the Ordinance. After expiration of the Required Holding Period, the Trustee may release such 102 Trustee Awards and any such Shares, provided that (i) the Trustee has received an acknowledgment from the ITA that the Grantee has paid any applicable taxes due pursuant to the Ordinance, or (ii) the Trustee and/or the Company and/or the Employer withholds all applicable taxes and compulsory payments due pursuant to the Ordinance arising from the 102 Trustee Awards and/or any Shares issued upon exercise or (if applicable) vesting of such 102 Trustee Awards. The Trustee shall not release any 102 Trustee Awards or Shares issued upon exercise or (if applicable) vesting thereof prior to the payment in full of the Grantee’s tax and compulsory payments arising from such 102 Trustee Awards and/or Shares or the withholding referred to in (ii) above.
9.5.2 Each 102 Trustee Award shall be subject to the relevant terms of the Ordinance, the Rules and any determinations, rulings or approvals issued by the ITA, which shall be deemed an integral part of the 102 Trustee Awards and shall prevail over any term contained in this Plan or Award Agreement that is not consistent therewith. Any provision of the Ordinance, the Rules and any determinations, rulings or approvals by the ITA not expressly specified in this Plan or Award Agreement that are necessary to receive or maintain any tax benefit pursuant to Section 102 of the Ordinance shall be binding on the Grantee. Any Grantee granted a 102 Trustee Awards shall comply with the Ordinance and the terms and conditions of the trust agreement entered into between the Company and the Trustee. The Grantee shall execute any and all documents that the Company and/or its Affiliates and/or the Trustee determine from time to time to be necessary in order to comply with the Ordinance and the Rules.
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9.5.3 During the Required Holding Period, the Grantee shall not release from trust or sell, assign, transfer or give as collateral, the Shares issuable upon the exercise or (if applicable) vesting of a 102 Trustee Awards and/or any securities issued or distributed with respect thereto, until the expiration of the Required Holding Period. Notwithstanding the above, if any such sale, release or other action occurs during the Required Holding Period it may result in adverse tax consequences to the Grantee under Section 102 of the Ordinance and the Rules, which shall apply to and shall be borne solely by such Grantee. Subject to the foregoing, the Trustee may, pursuant to a written request from the Grantee, but subject to the terms of this Plan, release and transfer such Shares to a designated third party, provided that both of the following conditions have been fulfilled prior to such release or transfer: (i) payment has been made to the ITA of all taxes and compulsory payments required to be paid upon the release and transfer of the Shares, and confirmation of such payment has been received by the Trustee and the Company, and (ii) the Trustee has received written confirmation from the Company that all requirements for such release and transfer have been fulfilled according to the terms of the Company’s corporate documents, any agreement governing the Shares, this Plan, the Award Agreement and any Applicable Law.
9.5.4 If a 102 Trustee Award is exercised or (if applicable) vested, the Shares issued upon such exercise or (if applicable) vesting shall be issued in the name of the Trustee for the benefit of the Grantee.
9.5.5 Upon or after receipt of a 102 Trustee Award, if required, the Grantee may be required to sign an undertaking to release the Trustee from any liability with respect to any action or decision duly taken and executed in good faith by the Trustee in relation to this Plan, or any 102 Trustee Awards or Share granted to such Grantee thereunder.
9.6. 102 Non-Trustee Awards. The foregoing provisions of this Section 9 relating to 102 Trustee Awards shall not apply with respect to 102 Non-Trustee Awards, which shall, however, be subject to the relevant provisions of Section 102 of the Ordinance and the applicable Rules. The Committee may determine that 102 Non-Trustee Awards, the Shares issuable upon the exercise or (if applicable) vesting of a 102 Non-Trustee Awards and/or any securities issued or distributed with respect thereto, shall be allocated or issued to the Trustee, who shall hold such 102 Non-Trustee Awards and all accrued rights thereon (if any), in trust for the benefit of the Grantee and/or the Company, as the case may be, until the full payment of tax arising from the 102 Non-Trustee Awards, the Shares issuable upon the exercise or (if applicable) vesting of a 102 Non-Trustee Awards and/or any securities issued or distributed with respect thereto. The Company may choose, alternatively, to require that the Grantee provide a guarantee or other security, to the satisfaction of each of the Trustee and the Company, until the full payment of the applicable taxes.
9.7. Written Grantee Undertaking. To the extent and with respect to any 102 Trustee Award, and as required by Section 102 of the Ordinance and the Rules, by virtue of the receipt of such Award, the Grantee is deemed to have provided, undertaken and confirmed the following written undertaking (and such undertaking is deemed incorporated into any documents signed by the Grantee in connection with the employment or service of the Grantee and/or the grant of such Award), which undertaking shall be deemed to apply and relate to all 102 Trustee Awards granted to the Grantee, whether under this Plan or other plans maintained by the Company, and whether prior to or after the date hereof.
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9.7.1 The Grantee shall comply with all terms and conditions set forth in Section 102 of the Ordinance with regard to the “Capital Gain Track” or the “Ordinary Income Track”, as applicable, and the applicable rules and regulations promulgated thereunder, as amended from time to time; 9.7.2 The Grantee is familiar with, and understands the provisions of, Section 102 of the Ordinance in general, and the tax arrangement under the “Capital Gain Track” or the “Ordinary Income Track” in particular, and its tax consequences; the Grantee agrees that the 102 Trustee Awards and Shares that may be issued upon exercise or (if applicable) vesting of the 102 Trustee Awards (or otherwise in relation to the 102 Trustee Awards), will be held by the Trustee appointed pursuant to Section 102 of the Ordinance for at least the duration of the “Holding Period” (as such term is defined in Section 102) under the “Capital Gain Track” or the “Ordinary Income Track”, as applicable. The Grantee understands that any release of such 102 Trustee Awards or Shares from trust, or any sale of the Share prior to the termination of the Holding Period, as defined above, will result in taxation at marginal tax rate, in addition to deductions of appropriate social security, health tax contributions or other compulsory payments; and
9.7.3 The Grantee agrees to the trust agreement signed between the Company, the Employer and the Trustee appointed pursuant to Section 102 of the Ordinance.
10. 3(I) AWARDS.
Awards granted pursuant to this Section 10 are intended to constitute 3(i) Awards and shall be granted subject to the general terms and conditions specified in Section 6 hereof and other provisions of this Plan, except for any provisions of this Plan applying to Awards under different tax laws or regulations. In the event of any inconsistency or contradictions between the provisions of this Section 10 and the other terms of this Plan, this Section 10 shall prevail.
10.1. To the extent required by the Ordinance or the ITA or otherwise deemed by the Committee to be advisable, the 3(i) Awards and/or any shares or other securities issued or distributed with respect thereto granted pursuant to this Plan shall be issued to a Trustee nominated by the Committee in accordance with the provisions of the Ordinance or the terms of a trust agreement, as applicable. In such event, the Trustee shall hold such Awards and or other securities issued or distributed with respect thereto in trust, until exercised or (if applicable) vested by the Grantee and the full payment of tax arising therefrom, pursuant to the Company’s instructions from time to time as set forth in a trust agreement, which will have been entered into between the Company and the Trustee. If determined by the Board or the Committee, and subject to such trust agreement, the Trustee shall be responsible for withholding any taxes to which a Grantee may become liable upon issuance of Shares, whether due to the exercise or (if applicable) vesting of Awards.
10.2. Shares pursuant to a 3(i) Award shall not be issued, unless the Grantee delivers to the Company payment in cash or by bank check or such other form acceptable to the Committee of all withholding taxes due, if any, on account of the Grantee acquired Shares under the Award or gives other assurance satisfactory to the Committee of the payment of those withholding taxes.
11. RESTRICTED SHARES.
The Committee may award Restricted Shares to any eligible Grantee, including under Section 102 of the Ordinance. Each Award of Restricted Shares under this Plan shall be evidenced by a written agreement between the Company and the Grantee (the “Restricted Share Agreement”), in such form as the Committee shall from time to time approve. The Restricted Shares shall be subject to all applicable terms of this Plan, which in the case of Restricted Shares granted under Section 102 of the Ordinance shall include Section 9 hereof, and may be subject to any other terms that are not inconsistent with this Plan. The provisions of the various Restricted Shares Agreements entered into under this Plan need not be identical with respect to any two Awards or Grantees. The Restricted Share Agreement shall comply with and be subject to Section 6 and the following terms and conditions, unless otherwise specifically provided in such Agreement and not inconsistent with this Plan or Applicable Law:
11.1. Purchase Price. Section 6.4 shall not apply. Each Restricted Share Agreement shall state an amount of Exercise Price to be paid by the Grantee, if any, in consideration for the issuance of the Restricted Shares and the terms of payment thereof, which may include payment in cash or, subject to the Committee’s approval, by issuance of promissory notes or other evidence of indebtedness on such terms and conditions as determined by the Committee.
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11.2. Restrictions. Restricted Shares may not be sold, assigned, transferred, pledged, hypothecated or otherwise disposed of, except by will or the laws of descent and distribution (in which case they shall be transferred subject to all restrictions then or thereafter applicable thereto), until such Restricted Shares shall have vested (the period from the date on which the Award is granted until the date of vesting of the Restricted Shares thereunder being referred to herein as the “Restricted Period”). The Committee may also impose such additional or alternative restrictions and conditions on the Restricted Shares, as it deems appropriate, including the satisfaction of performance criteria (which, in case of 102 Trustee Awards, may be subject to obtaining a specific tax ruling or determination from the ITA). Such performance criteria may include, but are not limited to, sales, earnings before interest and taxes, return on investment, earnings per share, any combination of the foregoing or rate of growth of any of the foregoing, as determined by the Committee or pursuant to the provisions of any Company policy required under mandatory provisions of Applicable Law. Certificates for shares issued pursuant to Restricted Share Awards, if issued, shall bear an appropriate legend referring to such restrictions, and any attempt to dispose of any such shares in contravention of such restrictions shall be null and void and without effect. Such certificates may, if so determined by the Committee, be held in escrow by an escrow agent appointed by the Committee, or, if a Restricted Share Award is made pursuant to Section 102 of the Ordinance, by the Trustee. In determining the Restricted Period of an Award the Committee may provide that the foregoing restrictions shall lapse with respect to specified percentages of the awarded Restricted Shares on successive anniversaries of the date of such Award. To the extent required by the Ordinance or the ITA, the Restricted Shares issued pursuant to Section 102 of the Ordinance shall be issued to the Trustee in accordance with the provisions of the Ordinance and the Restricted Shares shall be held for the benefit of the Grantee for at least the Required Holding Period.
11.3. Forfeiture; Repurchase. Subject to such exceptions as may be determined by the Committee, if the Grantee’s continuous employment with or service to the Company or any Affiliate thereof shall terminate (such that Grantee is no longer a Service Provider of either the Company or any Affiliate thereof) for any reason prior to the expiration of the Restricted Period of an Award or prior to the timely payment in full of the Exercise Price of any Restricted Shares, any Restricted Shares remaining subject to vesting or with respect to which the purchase price has not been paid in full, shall thereupon be forfeited, transferred to, and redeemed, repurchased or cancelled by, as the case may be, in any manner as set forth in Section 6.6.2(i) through (v), subject to Applicable Law and the Grantee shall have no further rights with respect to such Restricted Shares.
11.4. Ownership. During the Restricted Period the Grantee shall possess all incidents of ownership of such Restricted Shares, subject to Section 6.10 and Section 11.2, including the right to vote and receive dividends with respect to such Shares. All securities, if any, received by a Grantee with respect to Restricted Shares as a result of any stock split, stock dividend, combination of shares, or other similar transaction shall be subject to the restrictions applicable to the original Award. Notwithstanding anything to the contrary herein, dividends which are paid to the Company’s shareholders prior to the vesting date of any Restricted Shares shall only be paid to the Grantee of such Restricted Shares to the extent the vesting conditions applicable to such Restricted Shares are subsequently satisfied (and any such dividends will be paid no later than March 15 of the calendar year following the calendar year in which the right to the dividend payment becomes nonforfeitable)).
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12. RESTRICTED SHARE UNITS.
An RSU is an Award covering a number of Shares that is settled, if vested and (if applicable) exercised, by issuance of those Shares, or, in the discretion of the Committee, an amount of cash equal to the aggregate Fair Market Value of the Shares underlying the Award (other than with respect to 102 Trustee Awards). An RSU may be awarded to any eligible Grantee, including under Section 102 of the Ordinance. The Award Agreement relating to the grant of RSUs under this Plan (the “Restricted Share Unit Agreement”), shall be in such form as the Committee shall from time to time approve. The RSUs shall be subject to all applicable terms of this Plan, which in the case of RSUs granted under Section 102 of the Ordinance shall include Section 9 hereof, and may be subject to any other terms that are not inconsistent with this Plan. The provisions of the various Restricted Share Unit Agreements entered into under this Plan need not be identical. RSUs may be granted in consideration of a reduction in the recipient’s other compensation.
12.1. Exercise Price. No payment of Exercise Price shall be required as consideration for RSUs, unless included in the Award Agreement or as required by Applicable Law (including, Section 304 of the Companies Law), and Section 6.4 shall apply, if applicable.
12.2. Shareholders’ Rights. The Grantee shall not possess or own any ownership rights in the Shares underlying the RSUs and no rights as a shareholder shall exist prior to the actual issuance of Shares in the name of the Grantee.
12.3. Settlements of Awards. Settlement of vested RSUs shall be made in the form of Shares or, in the discretion of the Committee, cash (other than with respect 102 Trustee Awards). Distribution to a Grantee of an amount (or amounts) from settlement of vested RSUs can be deferred to a date after vesting as determined by the Committee. The amount of a deferred distribution may be increased by an interest factor or by dividend equivalents. Until the grant of RSUs is settled, the number of Shares underlying such RSUs shall be subject to adjustment pursuant hereto.
12.4. Section 409A Restrictions. Notwithstanding anything to the contrary set forth herein, any RSUs granted under this Plan that are not exempt from the requirements of Section 409A of the Code shall contain such restrictions or other provisions so that such RSUs will comply with the requirements of Section 409A of the Code, if applicable to the Company. Such restrictions, if any, shall be determined by the Committee and contained in the Restricted Share Unit Agreement evidencing such RSU. For example, such restrictions may include a requirement that any Shares that are to be issued in a year following the year in which the RSU vests must be issued in accordance with a fixed, pre-determined schedule.
13. OTHER SHARE OR SHARE-BASED AWARDS.
13.1. The Committee may grant other Awards under this Plan pursuant to which Shares (which may, but need not, be Restricted Shares pursuant to Section 11 hereof), cash (in settlement of Share-based Awards) or a combination thereof, are or may in the future be acquired or received, or Awards denominated in stock units, including units valued on the basis of measures other than market value.
13.2. The Committee may also grant stock appreciation rights without the grant of an accompanying option, which rights shall permit the Grantees to receive, at the time of any exercise of such rights, cash equal to the amount by which the Fair Market Value of the Shares in respect to which the right was granted is so exercised exceeds the exercise price thereof. The exercise price of any such stock appreciation right granted to a Grantee who is subject to U.S. federal income tax shall be determined in compliance with Section 7.2.
13.3. Such other Share-based Awards as set forth above may be granted alone, in addition to, or in tandem with any Award of any type granted under this Plan (without any obligation or assurance that that such Share-based Awards will be entitled to tax benefits under Applicable Law or to the same tax treatment as other Awards under this Plan).
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14. EFFECT OF CERTAIN CHANGES.
14.1. General. In the event of a division or subdivision of the outstanding share capital of the Company, any distribution of bonus shares (stock split), consolidation or combination of share capital of the Company (reverse stock split), reclassification with respect to the Shares or any similar recapitalization events (each, a “Recapitalization”), a merger (including, a reverse merger and a reverse triangular merger), consolidation, amalgamation or like transaction of the Company with or into another corporation, a reorganization (which may include a combination or exchange of shares, spin-off or other corporate divestiture or division, or other similar occurrences, the Committee shall make, without the need for a consent of any holder of an Award, such adjustments as determined by the Committee to be appropriate, in its discretion, in order to adjust (i) the number and class of shares reserved and available for grants of Awards, (ii) the number and class of shares covered by outstanding Awards, (iii) the Exercise Price per share covered by any Award, (iv) the terms and conditions concerning vesting and exercisability and the term and duration of the outstanding Awards, (v) the type or class of security, asset or right underlying the Award (which need not be only that of the Company, and may be that of the surviving corporation or any affiliate thereof or such other entity party to any of the above transactions), and (vi) any other terms of the Award that in the opinion of the Committee should be adjusted. Any fractional shares resulting from such adjustment shall be treated as determined by the Committee, and in the absence of such determination shall be rounded to the nearest whole share, and the Company shall have no obligation to make any cash or other payment with respect to such fractional shares. No adjustment shall be made by reason of the distribution of subscription rights or rights offering to outstanding shares or other issuance of shares by the Company, unless the Committee determines otherwise. The adjustments determined pursuant to this Section 14.1 (including a determination that no adjustment is to be made) shall be final, binding and conclusive.
Notwithstanding anything to the contrary included herein, and subject to Applicable Law and the applicable accounting standards, in the event of a distribution of cash dividend by the Company to all holders of Shares, the Committee shall have the authority to determine, without the need for a consent of any holder of an Award, that the Exercise Price of any Award, which is outstanding and unexercised on the record date of such distribution, shall be reduced by an amount equal to the per Share gross dividend amount distributed by the Company, and the Committee may determine that the Exercise Price following such reduction shall be not less than the par value of a Share (if such Shares bear a par value). The application of this Section with respect to any 102 Awards shall be subject to obtaining a ruling from the ITA, to the extent required by applicable law and subject to the terms and conditions of any such ruling.
14.2. Merger/Sale of Company. In the event of (i) a sale of all or substantially all of the assets of the Company, or a sale (including an exchange) of all or substantially all of the shares of the Company, to any person, or a purchase by a shareholder of the Company or by an Affiliate of such shareholder, of all the shares of the Company held by all or substantially all other shareholders or by other shareholders who are not Affiliated with such acquiring party; (ii) a merger (including, a reverse merger and a reverse triangular merger), consolidation, amalgamation or like transaction of the Company with or into another corporation; (iii) a scheme of arrangement for the purpose of effecting such sale, merger, consolidation, amalgamation or other transaction; (iv) approval by the shareholders of the Company of a complete liquidation or dissolution of the Company, (v) Change in Board Event, or (vi) such other transaction or set of circumstances that is determined by the Board, in its discretion, to be a transaction subject to the provisions of this Section 14.2 excluding any of the foregoing transactions in clauses (i) through (iv) if the Board determines that such transaction should be excluded from the definition hereof and the applicability of this Section 14.2 (each of the foregoing transactions, a “Merger/Sale”), then, without derogating from the general authority and power of the Board or the Committee under this Plan, without the Grantee’s consent and action and without any prior notice requirement, the Committee may make, in its sole and absolute discretion, any determination as to the treatment of Awards, as provided herein:
14.2.1 Unless otherwise determined by the Committee, any Award then outstanding shall be assumed or be substituted by the Company, or by the successor corporation in such Merger/Sale or by any parent or Affiliate thereof, as determined by the Committee in its discretion (the “Successor Corporation”), under terms as determined by the Committee or the terms of this Plan applied by the Successor Corporation to such assumed or substituted Awards.
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For the purposes of this Section 14.2.1, the Award shall be considered assumed or substituted if, following a Merger/Sale, the Award confers on the holder thereof the right to purchase or receive, for each Share underlying an Award immediately prior to the Merger/Sale, either (i) the consideration (whether shares or other securities, cash or other property, or rights, or any combination thereof) distributed to or received by holders of Shares in the Merger/Sale for each Share held on the effective date of the Merger/Sale (and if holders were offered a choice or several types of consideration, the type of consideration as determined by the Committee, which need not be the same type for all Grantees), or (ii) regardless of the consideration received by the holders of Shares in the Merger/Sale, solely shares or any type of Awards (or their equivalent) of the Successor Corporation at a value to be determined by the Committee in its discretion, or a certain type of consideration (whether shares or other securities, cash or other property, or rights, or any combination thereof) as determined by the Committee. Any of the consideration referred to in the foregoing clauses (i) and (ii) shall be subject to the same vesting and expiration terms of the Awards applying immediately prior to the Merger/Sale, unless determined by the Committee in its discretion that the consideration shall be subject to different vesting and expiration terms, or other terms, and the Committee may determine that it be subject to other or additional terms. The foregoing shall not limit the Committee’s authority to determine, that in lieu of such assumption or substitution of Awards for Awards of the Successor Corporation, such Award will be substituted for shares or other securities, cash or other property, or rights, or any combination thereof, including as set forth in Section 14.2.2 hereof.
14.2.2 Regardless of whether or not Awards are assumed or substituted, the Committee may (but shall not be obligated to):
14.2.2.1. provide for the Grantee to have the right to exercise the Award in respect of Shares covered by the Award which would otherwise be exercisable or vested, under such terms and conditions as the Committee shall determine, and the cancellation of all unexercised Awards (whether vested or unvested) upon or immediately prior to the closing of the Merger/Sale, unless the Committee provides for the Grantee to have the right to exercise the Award, or otherwise for the acceleration of vesting of such Award, as to all or part of the Shares covered by the Award which would not otherwise be exercisable or vested, under such terms and conditions as the Committee shall determine;
14.2.2.2. provide for the cancellation of each outstanding Award at or immediately prior to the closing of such Merger/Sale, and if and to what extent payment shall be made to the Grantee of an amount in, shares or other securities of the Company, the acquirer or of a corporation or other business entity which is a party to the Merger/Sale, in cash or other property, in rights, or in any combination thereof, as determined by the Committee to be fair in the circumstances, and subject to such terms and conditions as determined by the Committee. The Committee shall have full authority to select the method for determining the payment (being the intrinsic (“spread”) value of the option, Black-Scholes model or any other method). Inter alia, and without limitation of the following determination being made in other circumstances, the Committee’s determination may provide that payment shall be set to zero if the value of the Shares is determined to be less than the Exercise Price, or in respect of Shares covered by the Award which would not otherwise be exercisable or vested, or that payment may be made only in excess of the Exercise Price; and/or
14.2.2.3. provide that the terms of any Award shall be otherwise amended, modified or terminated, as determined by the Committee to be fair in the circumstances.
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14.2.3 The Committee may, determine: (i) that any payments made in respect of Awards shall be made or delayed to the same extent that payment of consideration to the holders of the Shares in connection with the Merger/Sale is made or delayed as a result of escrows, indemnification, earn outs, holdbacks or any other contingencies or conditions; (ii) the terms and conditions applying to the payment made or payable to the Grantees, including participation in escrow, indemnification, releases, earn-outs, holdbacks or any other contingencies; and (iii) that any terms and conditions applying under the applicable definitive transaction agreements shall apply to the Grantees (including, appointment and engagement of a shareholders or sellers representative, payment of fees or other costs and expenses associated with such services, indemnifying such representative, and authorization to such representative within the scope of such representative’s authority in the applicable definitive transaction agreements).
14.2.4 The Committee may determine to suspend the Grantee’s rights to exercise any vested portion of an Award for a period of time prior to the signing or consummation of a Merger/Sale transaction.
14.2.5 Without limiting the generality of this Section 14, if the consideration in exchange for Awards in a Merger/Sale includes any securities and due receipt thereof by any Grantee (or by the Trustee for the benefit of such Grantee) may require under applicable law (i) the registration or qualification of such securities or of any person as a broker or dealer or agent with respect to such securities; or (ii) the provision to any Grantee of any information under the Securities Act or any other securities laws, then the Committee may determine that the Grantee shall be paid in lieu thereof, against surrender of the Shares or cancellation of any other Awards, an amount in cash or other property, or rights, or any combination thereof, as determined by the Committee to be fair in the circumstances, and subject to such terms and conditions as determined by the Committee. Nothing herein shall entitle any Grantee to receive any form of consideration that such Grantee would be ineligible to receive as a result of such Grantee’s failure to satisfy (in the Committee’s sole determination) any condition, requirement or limitation that is generally applicable to the Company’s shareholders, or that is otherwise applicable under the terms of the Merger/Sale, and in such case, the Committee shall determine the type of consideration and the terms applying to such Grantees.
14.2.6 Neither the authorities and powers of the Committee under this Section 14.2, nor the exercise or implementation thereof, shall (i) be restricted or limited in any way by any adverse consequences (tax or otherwise) that may result to any holder of an Award, and (ii) as, inter alia, being a feature of the Award upon its grant, be deemed to constitute a change or an amendment of the rights of such holder under this Plan, nor shall any such adverse consequences (as well as any adverse tax consequences that may result from any tax ruling or other approval or determination of any relevant tax authority) be deemed to constitute a change or an amendment of the rights of such holder under this Plan, and may be effected without consent of any Grantee and without any liability to the Company or its Affiliates or to its or their respective officers, directors, employees and representatives and the respective successors and assigns of any of the foregoing. The Committee need not take the same action with respect to all Awards or with respect to all Service Providers. The Committee may take different actions with respect to the vested and unvested portions of an Award. The Committee may determine an amount or type of consideration to be received or distributed in a Merger/Sale which may differ as among the Grantees, and as between the Grantees and any other holders of shares of the Company.
14.2.7 The Committee may determine that upon a Merger/Sale any Shares held by Grantees (or for Grantee’s benefit) are sold in accordance with instructions issued by the Committee in connection with such Merger/Sale, which shall be final, conclusive and binding on all Grantees.
14.2.8 All of the Committee’s determinations pursuant to this Section 14 shall be at its sole and absolute discretion, and shall be final, conclusive and binding on all Grantees (including, for clarity, as it relates to Shares issued upon exercise or vesting of any Awards or that are Awards, unless otherwise determined by the Committee) and without any liability to the Company or its Affiliates, or to their respective officers, directors, employees, shareholders and representatives, and the respective successors and assigns of any of the foregoing, in connection with the method of treatment, chosen course of action or determinations made hereunder.
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14.2.9 If determined by the Committee, the Grantees shall be subject to the definitive agreement(s) in connection with the Merger/Sale as applying to holders of Shares including, such terms, conditions, representations, undertakings, liabilities, limitations, releases, indemnities, appointing and indemnifying shareholders/sellers representative, participating in transaction expenses, shareholders/sellers representative expense fund and escrow arrangement, in each case as determined by the Committee. Each Grantee shall execute (and authorizes any person designated by the Company to so execute, as well as (if applicable) the Trustee holding any Shares for the Grantee’s behalf) such separate agreement(s) or instruments as may be requested by the Company, the Successor Corporation or the acquirer in connection with such in such Merger/Sale or otherwise under or for the purpose of implementing this Section 14.2, and in the form required by them. The execution of such separate agreement(s) may be a condition to the receipt of assumed or substituted Awards, payment in lieu of the Award, the exercise of any Award or otherwise to be entitled to benefit from shares or other securities, cash or other property, or rights, or any combination thereof, pursuant to this Section 14.2 (and the Company (and, if applicable, the Trustee) may exercise its authorization above and sign such agreement on behalf of the Grantee or subject the Grantee to the provisions of such agreements).
14.3. Reservation of Rights. Except as expressly provided in this Section 14 (if any), the Grantee of an Award hereunder shall have no rights by reason of any transaction or event referred to in this Section 14 (including, Recapitalization of shares of any class, any increase or decrease in the number of shares of any class, or any dissolution, liquidation, reorganization, business combination, exchange of shares, spin-off or other corporate divestiture or division, or other similar occurrences, or Merger/Sale). Any issue by the Company of shares of any class, or securities convertible into shares of stock of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number, type or price of shares subject to an Award. The grant of an Award pursuant to this Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structures or to merge or to consolidate or to dissolve, liquidate or sell, or transfer all or part of its business or assets or engage in any similar transactions.
15. NON-TRANSFERABILITY OF AWARDS; SURVIVING BENEFICIARY.
15.1. All Awards granted under this Plan by their terms shall not be transferable other than by will or by the laws of descent and distribution, unless otherwise determined by the Committee or under this Plan, provided that with respect to Shares issued upon exercise of Awards, Shares issued upon the vesting of Awards or Awards that are Shares, the restrictions on transfer shall be the restrictions referred to in Section 16 (Conditions upon Issuance of Shares) hereof. Subject to the above provisions, the terms of such Award, this Plan and any applicable Award Agreement shall be binding upon the beneficiaries, executors, administrators, heirs and successors of such Grantee. Awards may be exercised or otherwise realized, during the lifetime of the Grantee, only by the Grantee or by his guardian or legal representative, to the extent provided for herein. Any transfer of an Award not permitted hereunder (including transfers pursuant to any decree of divorce, dissolution or separate maintenance, any property settlement, any separation agreement or any other agreement with a spouse) and any grant of any interest in any Award to, or creation in any way of any direct or indirect interest in any Award by, any party other than the Grantee shall be null and void and shall not confer upon any party or person, other than the Grantee, any rights. A Grantee may file with the Committee a written designation of a beneficiary, who shall be permitted to exercise such Grantee’s Award or to whom any benefit under this Plan is to be paid, in each case, in the event of the Grantee’s death before he or she fully exercises his or her Award or receives any or all of such benefit, on such form as may be prescribed by the Committee and may, from time to time, amend or revoke such designation. If no designated beneficiary survives the Grantee, the executor or administrator of the Grantee’s estate shall be deemed to be the Grantee’s beneficiary. Notwithstanding the foregoing, upon the request of the Grantee and subject to Applicable Law, the Committee, at its sole discretion, may permit the Grantee to transfer the Award to a trust whose beneficiaries are the Grantee and/or the Grantee’s immediate family members (all or several of them).
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15.2. Notwithstanding any other provisions of the Plan to the contrary, no Incentive Stock Option may be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution or in accordance with a beneficiary designation pursuant to Section 15.1. Further, all Incentive Stock Options granted to a Grantee shall be exercisable during his or her lifetime only by such Grantee.
15.3. As long as the Shares are held by the Trustee in favor of the Grantee, all rights possessed by the Grantee over the Shares are personal, and may not be transferred, assigned, pledged or mortgaged, other than by will or laws of descent and distribution.
15.4. If and to the extent a Grantee is entitled to transfer an Award and/or Shares underlying an Award in accordance with the terms of the Plan and any other applicable agreements, such transfer shall be subject (in addition, to any other conditions or terms applying thereto) to receipt by the Company from such proposed transferee of a written instrument, on a form reasonably acceptable to the Company, pursuant to which such proposed transferee agrees to be bound by all provisions of the Plan and any other applicable agreements, including without limitation, any restrictions on transfer of the Award and/or Shares set forth herein (however, failure to so deliver such instrument to the Company as set forth above shall not derogate from all such provisions applying on any transferee).
15.5. The provisions of this Section 15 shall apply to the Grantee and to any purchaser, assignee or transferee of any Shares.
16. CONDITIONS UPON ISSUANCE OF SHARES; GOVERNING PROVISIONS.
16.1. Legal Compliance. The grant of Awards and the issuance of Shares upon exercise or settlement of Awards shall be subject to compliance with all Applicable Law as determined by the Company, including, applicable requirements of federal, state and foreign law with respect to such securities. The Company shall have no obligations to issue Shares pursuant to the exercise or settlement of an Award and Awards may not be exercised or settled, if the issuance of Shares upon exercise or settlement would constitute a violation of any Applicable Law as determined by the Company, including, applicable federal, state or foreign securities laws or other law or regulations or the requirements of any stock exchange or market system upon which the Shares may then be listed. In addition, no Award may be exercised unless (i) a registration statement under the Securities Act or equivalent law in another jurisdiction shall at the time of exercise or settlement of the Award be in effect with respect to the shares issuable upon exercise of the Award, or (ii) in the opinion of legal counsel to the Company, the shares issuable upon exercise of the Award may be issued in accordance with the terms of an applicable exemption from the registration requirements of the Securities Act or equivalent law in another jurisdiction. The inability of the Company to obtain authority from any regulatory body having jurisdiction, if any, deemed by the Company to be necessary to the lawful issuance and sale of any Shares hereunder, and the inability to issue Shares hereunder due to non-compliance with any Company policies with respect to the sale of Shares, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority or compliance shall not have been obtained or achieved. As a condition to the exercise of an Award, the Company may require the person exercising such Award to satisfy any qualifications that may be necessary or appropriate, to evidence compliance with any Applicable Law or regulation and to make any representation or warranty with respect thereto as may be requested by the Company, including to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares, all in form and content specified by the Company.
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16.2. Provisions Governing Shares. Shares issued pursuant to an Award shall be subject to this Plan and shall be subject to the Articles of Association of the Company, and any other governing documents of the Company and all policies, manuals and internal regulations of the Company, as in effect from time to time.
16.3. Share Purchase Transactions; Forced Sale. In the event that the Board approves a Merger/Sale effected by way of a forced or compulsory sale (whether pursuant to the Company’s Articles of Association or pursuant to Section 341 of the Companies Law or any or otherwise) or in the event of a transaction for the sale of all shares of the Company, then, without derogating from such provisions and in addition thereto, the Grantee shall be obligated, and shall be deemed to have agreed to the offer to effect the Merger/Sale (and the Shares held by or for the benefit of the Grantee shall be included in the shares of the Company approving the terms of such Merger/Sale for the purpose of satisfying the required majority), and shall sell all of the Shares held by or for the benefit of the Grantee on the terms and conditions applying to the holders of Shares, in accordance with the instructions then issued by the Board, whose determination shall be final. No Grantee shall contest, bring any claims or demands, or exercise any appraisal or dissenters’ rights related to any of the foregoing. Each Grantee shall execute (and authorizes any person designated by the Company to so execute, as well as (if applicable) the Trustee holding any Shares for the Grantee’s behalf) such documents and agreements, as may be requested by the Company relating to matters set forth in or otherwise for the purpose of implementing this Section 16.3. The execution of such separate agreement(s) may be a condition by the Company to the exercise of any Award and the Company (and, if applicable, the Trustee) may exercise its authorization above and sign such agreement on behalf of the Grantee or subject the Grantee to the provisions of such agreements.
16.4. Data Privacy; Data Transfer. Information related to Grantees and Awards hereunder, as shall be received from Grantee or others, and/or held by, the Company or its Affiliates from time to time, and which information may include sensitive and personal information related to Grantees (“Information”), will be used by the Company or its Affiliates (or third parties appointed by any of them, including the Trustee) to comply with any applicable legal requirement, or for administration of the Plan as they deems necessary or advisable, or for the respective business purposes of the Company or its Affiliates (including in connection with transactions related to any of them). The Company and its Affiliates shall be entitled to transfer the Information among the Company or its Affiliates, and to third parties for the purposes set forth above, which may include persons located abroad (including, any person administering the Plan or providing services in respect of the Plan or in order to comply with legal requirements, or the Trustee, their respective officers, directors, employees and representatives, and the respective successors and assigns of any of the foregoing), and any person so receiving Information shall be entitled to transfer it for the purposes set forth above. The Company shall use commercially reasonable efforts to ensure that the transfer of such Information shall be limited to the reasonable and necessary scope. By receiving an Award hereunder, Grantee acknowledges and agrees that the Information is provided at Grantee’s free will and Grantee consents to the storage and transfer of the Information as set forth above.
16.5. Prohibition on Executive Officer Loans. Notwithstanding any other provision of the Plan to the contrary, no Grantee who is a member of the Board or an “executive officer” of the Company within the meaning of Section 13(k) of the Exchange Act shall be permitted to make payment with respect to any Awards granted under the Plan, or continue any extension of credit with respect to such payment, with a loan from the Company or a loan arranged by the Company in violation of Section 13(k) of the Exchange Act.
16.6. Clawback Provisions. All Awards (including the gross amount of any proceeds, gains or other economic benefit the Grantee actually or constructively receives upon receipt or exercise of any Award or the receipt or resale of any Shares underlying the Award) will be subject to recoupment by the Company to the extent required to comply with Applicable Law or any policy of the Company that the Company may be required to adopt in accordance with, and subject to, Applicable Law providing for the reimbursement of incentive compensation, whether or not such policy was in place at the time of grant of an Award.
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17. AGREEMENT REGARDING TAXES; DISCLAIMER.
17.1. If the Company shall so require, as a condition of exercise or (if applicable) vesting of an Award, the release of Shares by the Trustee or the vesting or settlement of an Award, a Grantee shall agree that, no later than the date of such occurrence, the Grantee will pay to the Company (or the Trustee, as applicable) or make arrangements satisfactory to the Company and the Trustee (if applicable) regarding payment of any applicable taxes and compulsory payments of any kind required by Applicable Law to be withheld or paid.
17.2. TAX LIABILITY. ALL TAX CONSEQUENCES UNDER ANY APPLICABLE LAW WHICH MAY ARISE FROM THE GRANT OF ANY AWARDS OR THE EXERCISE OR (IF APPLICABLE) VESTING THEREOF, THE SALE OR DISPOSITION OF ANY SHARES GRANTED HEREUNDER OR ISSUED UPON EXERCISE OR (IF APPLICABLE) THE VESTING OF ANY AWARD, THE ASSUMPTION, SUBSTITUTION, CANCELLATION OR PAYMENT IN LIEU OF AWARDS OR FROM ANY OTHER ACTION IN CONNECTION WITH THE FOREGOING (INCLUDING WITHOUT LIMITATION ANY TAXES AND COMPULSORY PAYMENTS, SUCH AS SOCIAL SECURITY OR HEALTH TAX PAYABLE BY THE GRANTEE OR THE COMPANY IN CONNECTION THEREWITH) SHALL BE BORNE AND PAID SOLELY BY THE GRANTEE, AND THE GRANTEE SHALL INDEMNIFY THE COMPANY, ITS SUBSIDIARIES AND AFFILIATES AND THE TRUSTEE, AND SHALL HOLD THEM HARMLESS AGAINST AND FROM ANY LIABILITY FOR ANY SUCH TAX OR PAYMENT OR ANY PENALTY, INTEREST OR INDEXATION THEREON. EACH GRANTEE AGREES TO, AND UNDERTAKES TO COMPLY WITH, ANY RULING, SETTLEMENT, CLOSING AGREEMENT OR OTHER SIMILAR AGREEMENT OR ARRANGEMENT WITH ANY TAX AUTHORITY IN CONNECTION WITH THE FOREGOING WHICH IS APPROVED BY THE COMPANY.
17.3. NO TAX ADVICE. THE GRANTEE IS ADVISED TO CONSULT WITH A TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES OF RECEIVING, EXERCISING OR DISPOSING OF AWARDS HEREUNDER. THE COMPANY DOES NOT ASSUME ANY RESPONSIBILITY TO ADVISE THE GRANTEE ON SUCH MATTERS, WHICH SHALL REMAIN SOLELY THE RESPONSIBILITY OF THE GRANTEE.
17.4. TAX TREATMENT. THE COMPANY AND ITS AFFILIATES (INCLUDING THE EMPLOYER) DO NOT UNDERTAKE OR ASSUME ANY LIABILITY OR RESPONSIBILITY TO THE EFFECT THAT ANY AWARD SHALL QUALIFY WITH ANY PARTICULAR TAX REGIME OR RULES APPLYING TO PARTICULAR TAX TREATMENT, OR BENEFIT FROM ANY PARTICULAR TAX TREATMENT OR TAX ADVANTAGE OF ANY TYPE AND THE COMPANY AND ITS AFFILIATES (INCLUDING THE EMPLOYER) SHALL BEAR NO LIABILITY IN CONNECTION WITH THE MANNER IN WHICH ANY AWARD IS TREATED FOR TAX PURPOSES, REGARDLESS OF WHETHER THE AWARD WAS GRANTED OR WAS INTENDED TO QUALIFY UNDER ANY PARTICULAR TAX REGIME OR TREATMENT. THIS PROVISION SHALL SUPERSEDE ANY TYPE OF AWARDS OR TAX QUALIFICATION INDICATED IN ANY CORPORATE RESOLUTION OR AWARD AGREEMENT, WHICH SHALL AT ALL TIMES BE SUBJECT TO THE REQUIREMENTS OF APPLICABLE LAW. THE COMPANY AND ITS AFFILIATES (INCLUDING THE EMPLOYER) DO NOT UNDERTAKE AND SHALL NOT BE REQUIRED TO TAKE ANY ACTION IN ORDER TO QUALIFY ANY AWARD WITH THE REQUIREMENT OF ANY PARTICULAR TAX TREATMENT AND NO INDICATION IN ANY DOCUMENT TO THE EFFECT THAT ANY AWARD IS INTENDED TO QUALIFY FOR ANY TAX TREATMENT SHALL IMPLY SUCH AN UNDERTAKING. THE COMPANY AND ITS AFFILIATES (INCLUDING THE EMPLOYER) DO NOT UNDERTAKE TO REPORT FOR TAX PURPOSES ANY AWARD IN ANY PARTICULAR MANNER, INCLUDING IN ANY MANNER CONSISTENT WITH ANY PARTICULAR TAX TREATMENT. NO ASSURANCE IS MADE BY THE COMPANY OR ANY OF ITS AFFILIATES (INCLUDING THE EMPLOYER) THAT ANY PARTICULAR TAX TREATMENT ON THE DATE OF GRANT WILL CONTINUE TO EXIST OR THAT THE AWARD WOULD QUALIFY AT THE TIME OF EXERCISE, VESTING OR DISPOSITION THEREOF WITH ANY PARTICULAR TAX TREATMENT. THE COMPANY AND ITS AFFILIATES (INCLUDING THE EMPLOYER) SHALL NOT HAVE ANY LIABILITY OR OBLIGATION OF ANY NATURE IN THE EVENT THAT AN AWARD DOES NOT QUALIFY FOR ANY PARTICULAR TAX TREATMENT, REGARDLESS WHETHER THE COMPANY COULD HAVE OR SHOULD HAVE TAKEN ANY ACTION TO CAUSE SUCH QUALIFICATION TO BE MET AND SUCH QUALIFICATION REMAINS AT ALL TIMES AND UNDER ALL CIRCUMSTANCES AT THE RISK OF THE GRANTEE. THE COMPANY DOES NOT UNDERTAKE OR ASSUME ANY LIABILITY TO CONTEST A DETERMINATION OR INTERPRETATION (WHETHER WRITTEN OR UNWRITTEN) OF ANY TAX AUTHORITIES, INCLUDING IN RESPECT OF THE QUALIFICATION UNDER ANY PARTICULAR TAX REGIME OR RULES APPLYING TO PARTICULAR TAX TREATMENT. IF THE AWARDS DO NOT QUALIFY UNDER ANY PARTICULAR TAX TREATMENT IT COULD RESULT IN ADVERSE TAX CONSEQUENCES TO THE GRANTEE.
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17.5. The Company or any Subsidiary or other Affiliate thereof (including the Employer) may take such action as it may deem necessary or appropriate, in its discretion, for the purpose of or in connection with withholding of any taxes and compulsory payments which the Trustee, the Company or any Subsidiary or other Affiliate thereof (including the Employer) (or any applicable agent thereof) is required by any Applicable Law to withhold in connection with any Awards, including, without limitations, any income tax, social benefits, social insurance, health tax, pension, payroll tax, fringe benefits, excise tax, payment on account or other tax-related items related to the Grantee’s participation in the Plan and applicable by law to the Grantee (collectively, “Withholding Obligations”). Such actions may include (i) requiring Grantees to remit to the Company or the Employer in cash an amount sufficient to satisfy such Withholding Obligations and any other taxes and compulsory payments, payable by the Company or the Employer in connection with the Award or the exercise or (if applicable) the vesting thereof; (ii) subject to Applicable Law, allowing the Grantees to surrender Shares to the Company, in an amount that at such time, reflects a value that the Committee determines to be sufficient to satisfy such Withholding Obligations; (iii) withholding Shares otherwise issuable upon the exercise of an Award at a value which is determined by the Company to be sufficient to satisfy such Withholding Obligations; (iv) allowing Grantees to satisfy all or part of the Withholding Obligations by the delivery (on a form prescribed by the Company) of an irrevocable direction to a securities broker approved by the Company to sell Shares and to deliver all or part of the sales proceeds to the Company or the Trustee; or (iv) any combination of the foregoing. The Company shall not be obligated to allow the exercise or vesting of any Award by or on behalf of a Grantee until all tax consequences arising therefrom are resolved in a manner acceptable to the Company.
17.6. Each Grantee shall notify the Company in writing promptly and in any event within ten (10) days after the date on which such Grantee first obtains knowledge of any tax authority inquiry, audit, assertion, determination, investigation, or question relating in any manner to the Awards granted or received hereunder or Shares issued thereunder and shall continuously inform the Company of any developments, proceedings, discussions and negotiations relating to such matter, and shall allow the Company and its representatives to participate in any proceedings and discussions concerning such matters. Upon request, a Grantee shall provide to the Company any information or document relating to any matter described in the preceding sentence, which the Company, in its discretion, requires.
17.7. With respect to 102 Non-Trustee Options, if the Grantee ceases to be employed by the Company, Parent, Subsidiary or any Affiliate (including the Employer), the Grantee shall extend to the Company and/or the Employer a security or guarantee for the payment of taxes due at the time of sale of Shares, all in accordance with the provisions of Section 102 of the Ordinance and the Rules.
17.8. If a Grantee makes an election under Section 83(b) of the Code to be taxed with respect to an Award as of the date of transfer of Shares rather than as of the date or dates upon which the Grantee would otherwise be taxable under Section 83(a) of the Code, such Grantee shall deliver a copy of such election to the Company upon or prior to the filing such election with the U.S. Internal Revenue Service. Neither the Company nor any Affiliate (including the Employer) shall have any liability or responsibility relating to or arising out of the filing or not filing of any such election or any defects in its construction.
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18. RIGHTS AS A SHAREHOLDER; VOTING AND DIVIDENDS.
18.1. Subject to Section 11.4, a Grantee shall have no rights as a shareholder of the Company with respect to any Shares covered by an Award until the Grantee shall have exercised or (as applicable) vests in the Award, paid any Exercise Price therefor and becomes the record holder of the subject Shares. In the case of 102 Awards, the Trustee shall have no rights as a shareholder of the Company with respect to the Shares covered by such Award until the Trustee becomes the record holder for such Shares for the Grantee’s benefit, and the Grantee shall not be deemed to be a shareholder and shall have no rights as a shareholder of the Company with respect to the Shares covered by the Award until the date of the release of such Shares from the Trustee to the Grantee and the transfer of record ownership of such Shares to the Grantee (provided, however, that the Grantee shall be entitled to receive from the Trustee any cash dividend or distribution made on account of the Shares held by the Trustee for such Grantee’s benefit, subject to any tax withholding and compulsory payment). No adjustment shall be made for dividends (ordinary or extraordinary, whether in shares or other securities, cash or other property, or rights, or any combination thereof) or distribution of other rights for which the record date is prior to the date on which the Grantee or Trustee (as applicable) becomes the record holder of the Shares covered by an Award, except as provided in Section 14 hereof.
18.2. With respect to all Awards issued in the form of Shares hereunder or upon the exercise or (if applicable) the vesting of Awards hereunder, any and all voting rights attached to such Shares shall be subject to Section 18.1, and the Grantee shall be entitled to receive dividends distributed with respect to such Shares, subject to the provisions of the Company’s Articles of Association, as amended from time to time, and subject to any Applicable Law.
18.3. The Company may, but shall not be obligated to, register or qualify the sale of Shares under any applicable securities law or any other Applicable Law.
19. NO REPRESENTATION BY COMPANY.
By granting the Awards, the Company is not, and shall not be deemed as, making any representation or warranties to the Grantee regarding the Company, its business affairs, its prospects or the future value of its Shares and such representations and warranties are hereby disclaimed. The Company shall not be required to provide to any Grantee any information, documents or material in connection with the Grantee’s considering an exercise of an Award. To the extent that any information, documents or materials are provided, the Company shall have no liability with respect thereto. Any decision by a Grantee to exercise an Award shall solely be at the risk of the Grantee.
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20. NO RETENTION RIGHTS.
Nothing in this Plan, any Award Agreement or in any Award granted or agreement entered into pursuant hereto shall confer upon any Grantee the right to continue in the employ of, or be in the service of the Company or any Subsidiary or other Affiliate thereof as a Service Provider or to be entitled to any remuneration or benefits not set forth in this Plan or such agreement, or to interfere with or limit in any way the right of the Company or any such Subsidiary or other Affiliate thereof to terminate such Grantee’s employment or service (including, any right of the Company or any of its Affiliates to immediately cease the Grantee’s employment or service or to shorten all or part of the notice period, regardless of whether notice of termination was given by the Company or its Affiliates or by the Grantee). Awards granted under this Plan shall not be affected by any change in duties or position of a Grantee, subject to Sections 6.6 through 6.8. No Grantee shall be entitled to claim and the Grantee hereby waives any claim against the Company or any Subsidiary or other Affiliate thereof that he or she was prevented from continuing to vest Awards as of the date of termination of his or her employment with, or services to, the Company or any Subsidiary or other Affiliate thereof. No Grantee shall be entitled to any compensation in respect of the Awards which would have vested had such Grantee’s employment or engagement with the Company (or any Subsidiary or other Affiliate thereof) not been terminated.
21. PERIOD DURING WHICH AWARDS MAY BE GRANTED.
Awards may be granted pursuant to this Plan from time to time within a period of ten (10) years from the Effective Date, unless terminated earlier by the Board. From and after such date (as extended) no grants of Awards may be made and this Plan shall continue to be in full force and effect with respect to Awards or Shares issued thereunder that remain outstanding.
22. AMENDMENT OF THIS PLAN AND AWARDS.
22.1. The Board at any time and from time to time may suspend, terminate, modify or amend this Plan, whether retroactively or prospectively. Any amendment effected in accordance with this Section shall be binding upon all Grantees and all Awards, whether granted prior to or after the date of such amendment, and without the need to obtain the consent of any Grantee. No termination or amendment of this Plan shall affect any then outstanding Award unless expressly provided by the Board.
22.2. Subject to changes in Applicable Law that would permit otherwise, without the approval of the Company’s shareholders, there shall be (i) no increase in the maximum aggregate number of Shares that may be issued under this Plan as Incentive Stock Options (except by operation of the provisions of Section 14.1), (ii) no change in the class of persons eligible to receive Incentive Stock Options, and (iii) no other amendment of this Plan that would require approval of the Company’s shareholders under any Applicable Law or the rules of the applicable stock market or exchange, if any, on which the Shares are principally quoted or traded. Unless not permitted by Applicable Law, if the grant of an Award is subject to approval by shareholders, the date of grant of the Award shall be determined as if the Award had not been subject to such approval. Failure to obtain approval by the shareholders shall not in any way derogate from the valid and binding effect of any grant of an Award that is not an Incentive Stock Option.
22.3. The Board or the Committee at any time and from time to time may modify or amend any Award theretofore granted, including any Award Agreement, whether retroactively or prospectively.
23. APPROVAL.
23.1. This Plan shall take effect upon its adoption by the Board, subject to approval of the Plan by the shareholders within twelve months of the date of the Board’s initial adoption (the “Effective Date”).
23.2. 102 Awards are conditional upon the filing with or approval by the ITA, if required, as set forth in Section 9.4. Failure to so file or obtain such approval shall not in any way derogate from the valid and binding effect of any grant of an Award, which is not a 102 Award.
24. RULES PARTICULAR TO SPECIFIC COUNTRIES; SECTION 409A.
24.1. Notwithstanding anything herein to the contrary, the terms and conditions of this Plan may be supplemented or amended with respect to a particular country or tax regime by means of a sub-plan or an appendix to this Plan, and to the extent that the terms and conditions set forth in any a sub-plan or appendix conflict with any provisions of this Plan, the provisions of such a sub-plan or appendix shall govern with respect to Awards, made pursuant thereto. Terms and conditions set forth in such appendix shall apply only to Awards granted to Grantees under the jurisdiction of the specific country or such other tax regime that is the subject of such a sub-plan or appendix and shall not apply to Awards issued to a Grantee not under the jurisdiction of such country or such other tax regime. The adoption of any such a sub-plan or appendix shall be subject to the approval of the Board or the Committee, and if and to the extent determined by the Committee to be required by Applicable Law in connection with the application of certain tax treatment, pursuant to applicable stock exchange rules or regulations or otherwise, then also the approval of the shareholders of the Company at the required majority.
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24.2. This Section 24.2 shall only apply to Awards granted to Grantees who are subject to United States Federal income tax.
24.2.1 It is the intention of the Company that no Award shall be deferred compensation subject to Section 409A of the Code unless and to the extent that the Committee specifically determines otherwise as provided in Section 24.2.2, and the Plan and the terms and conditions of all Awards shall be interpreted and administered accordingly.
24.2.2 The terms and conditions governing any Awards that the Committee determines will be subject to Section 409A of the Code, including any rules for payment or elective or mandatory deferral of the payment or delivery of Shares or cash pursuant thereto, and any rules regarding treatment of such Awards in the event of a Merger/Sale, shall be set forth in the applicable Award Agreement and shall be intended to comply in all respects with Section 409A of the Code, and the Plan and the terms and conditions of such Awards shall be interpreted and administered accordingly.
24.2.3 The Company shall have complete discretion to interpret and construe the Plan and any Award Agreement in any manner that establishes an exemption from (or compliance with) the requirements of Section 409A of the Code. If for any reason, such as imprecision in drafting, any provision of the Plan and/or any Award Agreement does not accurately reflect its intended establishment of an exemption from (or compliance with) Section 409A of the Code, as demonstrated by consistent interpretations or other evidence of intent, such provision shall be considered ambiguous as to its exemption from (or compliance with) Section 409A of the Code and shall be interpreted by the Company in a manner consistent with such intent, as determined in the discretion of the Company. If, notwithstanding the foregoing provisions of this Section 24.2.3, any provision of the Plan or any such agreement would cause a Grantee to incur any additional tax or interest under Section 409A of the Code, the Company may reform such provision in a manner intended to avoid the incurrence by such Grantee of any such additional tax or interest; provided that the Company shall maintain, to the extent reasonably practicable, the original intent and economic benefit to the Grantee of the applicable provision without violating the provisions of Section 409A of the Code. For the avoidance of doubt, no provision of this Plan shall be interpreted or construed to transfer any liability for failure to comply with the requirements of Section 409A from any Grantee or any other individual to the Company or any of its affiliates, employees or agents.
24.2.4 Notwithstanding any other provision in the Plan, any Award Agreement, or any other written document establishing the terms and conditions of an Award, if any Grantee is a “specified employee,” within the meaning of Section 409A of the Code, as of the date of his or her “separation from service” (as defined under Section 409A of the Code), then, to the extent required by Treasury Regulation Section 1.409A-3(i)(2) (or any successor provision), any payment made to such Grantee on account of his or her separation from service shall not be made before a date that is six months after the date of his or her separation from service. The Committee may elect any of the methods of applying this rule that are permitted under Treasury Regulation Section 1.409A-3(i)(2)(ii) (or any successor provision).
24.2.5 Notwithstanding any other provision of this Section 24.2 to the contrary, although the Company intends to administer the Plan so that Awards will be exempt from, or will comply with, the requirements of Section 409A of the Code, the Company does not warrant that any Award under the Plan will qualify for favorable tax treatment under Section 409A of the Code or any other provision of federal, state, local, or non-United States law. The Company shall not be liable to any Grantee for any tax, interest, or penalties the Grantee might owe as a result of the grant, holding, vesting, exercise, or payment of any Award under the Plan.
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25. GOVERNING LAW; JURISDICTION.
This Plan and all determinations made and actions taken pursuant hereto shall be governed by the laws of the State of Israel, except with respect to matters that are subject to tax laws, regulations and rules of any specific jurisdiction, which shall be governed by the respective laws, regulations and rules of such jurisdiction. Certain definitions, which refer to laws other than the laws of such jurisdiction, shall be construed in accordance with such other laws. The competent courts located in Tel-Aviv-Jaffa, Israel shall have exclusive jurisdiction over any dispute arising out of or in connection with this Plan and any Award granted hereunder. By signing any Award Agreement or any other agreement relating to an Award, each Grantee irrevocably submits to such exclusive jurisdiction.
26. NON-EXCLUSIVITY OF THIS PLAN.
The adoption of this Plan shall not be construed as creating any limitations on the power or authority of the Company to adopt such other or additional incentive or other compensation arrangements of whatever nature as the Company may deem necessary or desirable or preclude or limit the continuation of any other plan, practice or arrangement for the payment of compensation or fringe benefits to employees generally, or to any class or group of employees, which the Company or any Affiliate now has or will lawfully put into effect, including any retirement, pension, savings and stock purchase plan, insurance, death and disability benefits and executive short-term or long-term incentive plans.
27. MISCELLANEOUS.
27.1. Survival. The Grantee shall be bound by and the Shares issued upon exercise or (if applicable) the vesting of any Awards granted hereunder shall remain subject to this Plan after the exercise or (if applicable) the vesting of Awards, in accordance with the terms of this Plan, whether or not the Grantee is then or at any time thereafter employed or engaged by the Company or any of its Affiliates.
27.2. Additional Terms. Each Award awarded under this Plan may contain such other terms and conditions not inconsistent with this Plan as may be determined by the Committee, in its sole discretion.
27.3. Fractional Shares. No fractional Share shall be issuable upon exercise or vesting of any Award and the number of Shares to be issued shall be rounded down to the nearest whole Share (and the Company shall have liability to compensate for such fractional shares at any time), with in any Share remaining at the last vesting date due to such rounding to be issued upon exercise at such last vesting date.
27.4. Severability. If any provision of this Plan, any Award Agreement or any other agreement entered into in connection with an Award shall be determined to be illegal or unenforceable by any court of law in any jurisdiction, the remaining provisions hereof and thereof shall be severable and enforceable in accordance with their terms, and all provisions shall remain enforceable in any other jurisdiction. In addition, if any particular provision contained in this Plan, any Award Agreement or any other agreement entered into in connection with an Award shall for any reason be held to be excessively broad as to duration, geographic scope, activity or subject, it shall be construed by limiting and reducing such provision as to such characteristic so that the provision is enforceable to fullest extent compatible with Applicable Law as it shall then appear.
27.5. Captions and Titles. The use of captions and titles in this Plan or any Award Agreement or any other agreement entered into in connection with an Award is for the convenience of reference only and shall not affect the meaning or interpretation of any provision of this Plan or such agreement.
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Exhibit 4.9
AMENDMENT No. 2 TO THE LOAN AGREEMENT
This Amendment No. 2 (“Amendment”) to the Loan Agreement (as defined below) is entered into as of August 29, 2023 with the effective date of July 1 2023 (“Amendment Effective Date”) by and between Medigus Ltd., having its principal offices at Omer Industrial Park, No.7A, P.O. Box 3030, Omer 8496500, Israel (the “Lender”), and Gix Internet Ltd. (f/k/a Algomizer Ltd.), a company organized under the laws of the State of Israel, with principal offices at Menachem Begin, 11, Ramat Gan 5268104, Israel (the “Borrower”). Each of the Lender and the Borrower shall be referred to herein as “party” and together as the “Parties”.
WHEREAS, the Parties have entered into a loan agreement, dated October 12, 2021 (the “Loan Agreement”) and entered into a 1st Amendment to such Loan Agreement dated August 25, 2022 (“First Amendment”); and
WHEREAS, the Parties wish to extend the Amended Repayment Date as defined under the First Amendment.
NOW THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Parties hereto agree as follows:
| 1. | Definitions. All capitalized terms used herein, not otherwise defined, shall have the meaning set forth in the Loan Agreement or the First Amendment. |
“Last Interest Payment” means the last interest payment as descried in Section 2.2 to the First Amendment, which shall be made on the Second Amended Repayment Date.
“Second Amended Repayment Date” shall have the meaning described in Section 2 herein.
| 2. | Amendments. |
Repayment Date - The Remaining Loan Amount as defined under the First Amendment shall be repay in full together with the Last Interest Payment on January 1, 2024 (the “Second Amended Repayment Date”).
| 3. | No Further Amendments. Other than as set forth herein, all terms and conditions set forth in the Loan Agreement and the First Amendment shall remain without change, binding and of full force and effect. |
| 4. | Miscellaneous. This Amendment shall be governed and construed by the terms and conditions set forth in the Loan Agreement. In any event of a conflict between the terms contained in this Amendment and the Loan Agreement Or the First Amendment, the terms contained in this Amendment shall govern. |
IN WITNESS WHEREOF, the Parties have caused this Amendment to the Loan Agreement to be executed by their duly authorized representatives effective as of the Amendment Effective Date.
| Medigus Ltd. | Gix Internet Ltd. | |||
| /s/ Liron Carmel | /s/ Amihay Hadad, /s/ Amitay Weiss | |||
| By: | Liron Carmel | By: | Amihay Hadad, Amitay Weiss | |
| Title: | CEO | Title: | CFO, CEO | |
| Date: | 29.8.23 | Date: | 29.8.23 | |
Exhibit 4.10
AMENDMENT No. 3 TO THE LOAN AGREEMENT
This Amendment No. 3 (“Amendment”) to the Loan Agreement (as defined below) is entered into as of November 8, 2023 (“Effective Date”) by and between Medigus Ltd., having its principal offices at Omer Industrial Park, No.7A, P.O. Box 3030, Omer 8496500, Israel (the “Lender”), and Gix Internet Ltd. (f/k/a Algomizer Ltd.), a company organized under the laws of the State of Israel, with principal offices at Menachem Begin, 11, Ramat Gan 5268104, Israel (the “Borrower”). Each of the Lender and the Borrower shall be referred to herein as “party” and together as the “Parties”.
WHEREAS, the Parties have entered into a loan agreement, dated October 12, 2021 (the “Loan Agreement”) and entered into a 1st amendment to such Loan Agreement dated August 25, 2022 (the “First Amendment”); and entered into a 2st amendment to such Loan Agreement dated August 29, 2023 (collectively the “Amendments”); and
WHEREAS, the outstanding amount of the Loan Amount (as defined under the Loan Agreement), as of June 30, 2023, is NIS 3,000,000 (without interest);
WHEREAS, the Parties wish to increase the Remaining Loan Amount as defined under the First Amendment, by an amount of NIS 100,000.
NOW THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Parties hereto agree as follows:
| 1. | Definitions. All capitalized terms used herein, not otherwise defined, shall have the meaning set forth in the Loan Agreement or the Amendments. |
| 2. | Amendments. |
| 2.1 | The Remaining Loan Amount shall increase by an amount of NIS 100,000, such that the new Remaining Loan Amount will be NIS 3,100,000 (the “New Remaining Loan Amount”). |
| 3. | No Further Amendments. Other than as set forth herein, all terms and conditions set forth in the Loan Agreement and the Amendments shall remain without change, binding and of full force and effect. |
| 4. | Miscellaneous. This Amendment shall be governed and construed by the terms and conditions set forth in the Loan Agreement. In any event of a conflict between the terms contained in this Amendment and the Loan Agreement or the First Amendment, the terms contained in this Amendment shall govern. |
IN WITNESS WHEREOF, the Parties have caused this Amendment to the Loan Agreement to be executed by their duly authorized representatives effective as of the Effective Date.
| Medigus Ltd. | Gix Internet Ltd. | |||
| /s/ Liron Carmel | /s/ Amihay Hadad, /s/ Amitay Weiss | |||
| By: | Liron Carmel | By: | Amihay Hadad, Amitay Weiss | |
| Title: | CEO | Title: | CFO, CEO | |
| Date: | 08/11/2023 | Date: | 08/11/2023 | |
Exhibit 4.11
AMENDMENT No. 4 TO THE LOAN AGREEMENT
This Amendment No. 4 (“Amendment”) to the Loan Agreement (as defined below) is entered into as of January 1 2024, (“Effective Date”) by and between Medigus Ltd., having its principal offices at 10 HaNechoshet St.,Tel Aviv, Israel (the “Lender”), and Gix Internet Ltd. (f/k/a Algomizer Ltd.), a company organized under the laws of the State of Israel, with principal offices at Menachem Begin, 11, Ramat Gan 5268104, Israel (the “Borrower”). Each of the Lender and the Borrower shall be referred to herein as “party” and together as the “Parties”.
WHEREAS, the Parties have entered into a loan agreement, dated October 12, 2021 (the “Loan Agreement”) and entered into: (1) 1st amendment to such Loan Agreement dated August 25, 2022; (2) 2nd amendment to such Loan Agreement dated August 29, 2023 (the “Second Amendment”); and (3) 3rd amendment to such Loan Agreement dated November 8, 2023 (Collectively the “Amendments”);
WHEREAS, the Borrower, after receiving funds from a private offering to the lander, made a repayment of part of the Loan Amount (as defined under the Loan Agreement) in the amount of NIS 100,000;
WHEREAS, the outstanding amount of the New Remaining Loan Amount, as of December 31, 2023, is NIS 3,000,000 (without interest);
WHEREAS, the Parties wish to extend the Second Amended Repayment Date as defined under the Second Amendment and to grant the Lender certain additional rights.
NOW THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Parties hereto agree as follows:
| 1. | Definitions. All capitalized terms used herein, not otherwise defined, shall have the meaning set forth in the Loan Agreement or the Amendments. |
| 2. | Amendments. |
| 2.1. | Repayment Date - The New Remaining Loan Amount, as defined under the Third Amendment shall be repaid in full together with the Last Interest Payment on July 1, 2024 (the “Third Amended Repayment Date”). |
| 2.2. | The following Section 3.1.6 shall be added: |
“Notwithstanding the above, in the event that the Borrower (i) changes its principal business, enters new line of business, or exits a principal portion of its current line of business; or (ii) consummates a transaction whereby it is either mergers or consolidates with or into any other corporate entity (each a “Trigger Event”), the Lender shall be entitled to request the conversion of all or part of the New Remaining Loan Amount, and any or all accrued Interest thereof, into such number of ordinary shares with no par value of the Borrowe (the “Borrower Shares”), at a price per share equal to the average closing bid price of the Borrower’s Shares on the Tel-Aviv Stock Exchange during the 30 trading days prior to the Trigger Event, subject to obtaining all approvals required under applicable law.
| 3. | No Further Amendments. Other than as set forth herein, all terms and conditions set forth in the Loan Agreement and the Amendments shall remain without change, binding and of full force and effect. |
| 4. | Miscellaneous. This Amendment shall be governed and construed by the terms and conditions set forth in the Loan Agreement. In any event of a conflict between the terms contained in this Amendment and the Loan Agreement or the other Amendments, the terms contained in this Amendment shall govern. |
IN WITNESS WHEREOF, the Parties have caused this Amendment to the Loan Agreement to be executed by their duly authorized representatives effective as of the Effective Date.
| Medigus Ltd. | Gix Internet Ltd. | |||
| /s/ Liron Carmel | /s/ Amihay Hadad, /s/ Amitay Weiss | |||
| By: | Liron Carmel | By: | Amihay Hadad, Amitay Weiss | |
| Title: | Title: | CFO, CEO | ||
| Date: | _______ | Date: | 12/02/2024 | |
Exhibit 4.14
Summary of Agreement
Note: this summary does not contain a full or direct translation of the terms of the original Hebrew Agreement, and is designated solely for the purpose of providing a general presentation of such Agreement.
On April 2, 2023, Medigus Ltd. (the “Investor”) entered into an agreement (the “Agreement”) with Metagramm Software Ltd. (the “Company”) and others (the “Shareholders”).
| 1. | Main Transaction |
The Company shall allocate ordinary shares with par value of NIS 0.001, to the Investor, free of any encumbrances. Following the allocation, the Investor will own 19.99% of the Company's outstanding capital on fully diluted basis. The Investor will allocate it’s Ordinary Shares valued at $250,000 USD to the Company, subject to terms of the Agreement and applicable law (the “Investor Shares”). Price will be based on the average market price over the 30 trading days before the signing. The Investor will make all efforts to allocate these shares to the Company no later than 30 days after completion. The Investor will provide the Company with an Owners loan of $250,000 USD. The Shareholders will provide the Company with a loan of $125,000 USD. The Company commits not to sell any Investor Shares for 6 months following the allocation and will not sell shares of the Investor exceeding 10% of the daily trading volume in any single trading day of the Investor.
| 2. | Representations and Warranties of the Company |
The Company was duly incorporated on January 6, 2022, and is in good standing under the laws of the State of Israel, operates in compliance with all applicable laws and regulations, and is not undergoing liquidation, dissolution, or insolvency proceedings. The registered share capital of the Company is 10,000,000 shares, with par value of NIS 0.001 per share. The issued share capital is composed of 533,400 shares, distributed amongst the Shareholders. The Company’s shares are properly issued, fully paid, and free from any claims or encumbrances. No third-party has any options, rights, or interests in the Company’s shares, but for Greener’s Repurchase Agreement. The Company has no active liens other than a lien on its line of credit, no guarantees by third parties, has no brokerage agreements, not any rights in competitors businesses, did not acquire any kind of insurance policy, does not hire freelancers, and has no restriction executing this Agreement. The Company has full power and authority to conduct its business. The Company is the sole owner if its product, and own no other assets. The Company has valid rights to all its intellectual property, including assets acquired from Tectona Ltd. The Company is not involved in any legal actions or disputes.
| 3. | Representations and Warranties of the Shareholders |
The Shareholders, jointly and severally, confirm that the representations in Section 2 are true and complete. Each Shareholder has full authority to sign and fulfill obligations under the Agreement.
| 4. | Representations and Warranties of the Investor |
The Investor confirms that it is a publicly traded company, registered in Israel, whose shares trade on NASDAQ, operating in compliance with NASDAQ rules and without bankruptcy proceedings. Its engagement in this Agreement does not breach any legal or contractual obligations, and it has the authority, financial resources, and expertise to fulfill its commitments. Execution of due diligence by the Investor does not diminish its rights under this Agreement.
| 5. | Loan Placement, Execution of Pilot and Profit Distribution |
Upon completing the issuance of Company shares to the Investor, a $250,000 USD loan with a 6% annual interest rate (the “Investor Loan”) will be provided to the Company in three equal installments. Shareholders will encumber their shares, and the Company will encumber its rights to receipts in favor of the Investor. The Company shall use the proceeds of the Investor Loan solely to fund the pilot (the “Pilot”) it is conducting with its product. If the Investor, after advising with the Board of Directors of the Company, is of the opinion that additional funding is required to continue the Company’s operations, it will notify the Shareholders that additional funding is required (the “Funding Notice”). Upon receipt of the Funding Notice, the Shareholder shall extend a loan to the Company (the “Shareholders’ Loan”), to be repaid upon: 1) the Investor has been paid back the Investor Loan, including interest or 2) if, per the Company’s audited financial statement, the Company has made a pure profit. In order to ensure repayment of the Investor Loan: 1) the Shareholders have placed a lien in favor of the Investor on the entirety of their holdings in the Company and 2)the Company will place a lien in favor of the Investor on all of its rights to royalties. The Investor Loan and the Shareholders’ Loan will each bear interest at a rate of 6% a year. The Company will pay back the Investor loan if the Pilot is successful, as defined in the Agreement, and the Investor Loan, and its interest, will be repaid in eight (8) quarterly installments beginning on the first day of the third year after the extension of the Investor Loan. If the Pilot is not successful, as defined in the Agreement, the Company will repay the entirety of the Investor Loan in monthly installments of the higher of: (1) $10,000 per month or (2) 60% of the Company’s revenue in the relevant month. In the event that after 15 months from the date of signing of the Agreement the Pilot has not been deemed as successful, as defined in the Agreement, the Investor will have the right to demand from the Company to perform the following: 1) Issuance by the Company of additional shares in the Company (the “Additional Issuance”), such that after the additional issuance the Investor will hold 31.25% of the Company on a fully diluted basis; the Investor shall not be required to give consideration for the Additional Issuance; or 2) The Company will not allocate shares to the Investor and the Investor will remain a shareholder in the Company. In the event the Company chooses the Additional Issuance, the Company and the Shareholders shall be entitled to give notice to the Investor that they are interested in acquiring all of the Investor’s holdings in the Company, including interest; additionally, the Shareholders will pay the Investor $250,000 (for a sum total $500,000), and in return the Investor shall transfer its holdings in the Company to the Shareholders. Starting in 2026, the Company will distribute at least 33% of annual profits to the Shareholders and the Investor.
| 6. | Replacement of the Company’s Articles of Association |
Upon signing of the Agreement, the Shareholders will approve new Articles of Association that establish restrictions on share transfers, board decision-making, and other rights during a three-year – “restricted period”.
| 7. | Board of Directors; Management of the Company; Decision Making in the Company |
As of the date of signing of the Agreement, the Company’s board will consist of two directors, with the Investor gaining the right to appoint one upon holding 25% or more of Company’s share capital. The Investor can also appoint an observer from signing, granting them full participation in board meetings and access to Company information. Decisions are made by simple majority, but certain matters require Investor or Investor’s director consent: (1) Change or add Company activities, (2) fundraising or share allocation below the Investor’s investment value basis, (3) officers’ personal interests or related parties transactions, (4) public capital raising, (5) Company guarantees exceeding NIS 500,000, (6) sale or transfer of Company assets, (7) employment of Shareholders’ relatives, (8) amendments to the Articles of Association affecting Investor’s investment value basis, (9) establishment of subsidiaries or reorganization , and (10) appointment, termination, or terms of the CEO or other officers.
| 8. | Indemnification |
The Shareholders and Company jointly and severally agree to indemnify the Investor for any damages, costs, expenses, losses, or direct payments incurred as a result of certain events as listed in the Agreement.
| 9. | Confidentiality |
Each party agrees to keep confidential information received from another party and not disclose it to third parties without prior written consent, except as required by law.
| 10. | Intellectual Property |
The Parties may not use, sell, transfer, or allow use of the Company’s intellectual property rights without the written consent of the Company’s Board of Directors. The Shareholders confirm that they have transferred all related intellectual property rights to the Company and waive any claims against the Company related to these rights.
| 11. | Non-competition; No solicitation |
The Shareholders agree to abstain from the following while holding Company shares and for one year after ceasing to hold shares: (1) not to compete with the Company or engage in related activities, directly or indirectly; (2) soliciting any of the Company’s customers to cease or change their engagement with the Company; and (3) contacting or soliciting any of the Company’s employees to end their engagement with the Company.
| 12. | Information rights |
The Company will provide the Investor with audited financial statements quarterly and annually once the Investor holds at least 20% of the Company's shares, that could be disclosed to third parties.
| 13. | Dispute resolution |
Disputes will be resolved through mediation by a mutually agreed mediator. If unresolved within 30 days, parties may seek resolution in Tel Aviv courts under Israeli law.
| 14. | Assignment |
Shareholders agree not to transfer this agreement, its rights, or obligations without the Investor’s written consent. The Investor can transfer its rights to a wholly owned subsidiary by notice to Company.
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Exhibit 4.15
ORDINARY SHARE PURCHASE AGREEMENT
THIS ORDINARY SHARE PURCHASE AGREEMENT (this “Agreement”) made as of 20 June, 2023 (the “Effective Date”), by and among Polyrizon Ltd., a company incorporated under the laws of the state of Israel, whose principal address is at 5Hatidhar St., Ra’anana, Israel (the “Company”), Medigus Ltd., a company incorporated under the laws of the state of Israel, whose principle address is at 10 HaNechoshet Street, 6971072, Tel Aviv, Israel (“Medigus”), Mr. Raul Srugo holding Israeli ID No. 069624500 and his affiliates listed in Exhibit A hereto (collectively “Srugo”), the persons and/or entities listed in Exhibit B hereto (together with Medigus and Srugo each, a “Purchaser” and collectively, the “Purchasers”) and the investors under various Simple Agreement for Future Equity Agreements dated January 30th 2022, June 8th 2022 and August 21st 2022 (collectively, the “SAFE Agreements”) whose names are listed in Exhibit C attached hereto (each a “SAFE Holder” and collectively, the “SAFE Holders”, and together with the Purchasers, the “Investors”).
Each herein referred to individually as a “Party” or collectively the “Parties”.
WHEREAS, Investors are shareholders of the Company pursuant to previous transactions executed between the Investors and the Company from time to time; and
Whereas, the Board of Directors of the Company (the “Board”) has determined that it is in the best interests of the Company to raise capital by means of issuance of the Company’s Ordinary Shares, of no nominal value (the “Ordinary Shares”) to the Purchasers, at a purchase price of US$0.383224512 per each Ordinary Share (the “PPS”), as more fully set forth in this Agreement; and
WHEREAS, the SAFE Holders have previously provided capital to the Company in an aggregate amount of US$ 718,952 (the “Convertible Amount”) pursuant to the terms of the SAFE Agreements, and the Parties acknowledge that, at the Closing (as defined below), the entire Convertible Amount shall be converted into the Company’s Ordinary Shares, convertible in the manner set forth in the SAFE Agreements, at the Conversion Price Per Share (as defined below) (the “Conversion Shares” and together with the Investment Shares (as defined below), the “Purchased Shares”); and
WHEREAS, the Purchasers desire to purchase and the Company desires to issue and sell to the Purchasers the Ordinary Shares pursuant to the terms and conditions more fully set forth in this Agreement.
NOW THEREFORE, in consideration for the mutual promises, covenants and obligations contained herein, and intending to be legally bound, the Parties hereby agree as follows:
| 1. | Purchase and Sale of Purchased Shares. |
| 1.1. | Sale and Issuance of Purchased Shares. Subject to the terms and conditions of this Agreement, at the Closing (as defined below) the Purchasers, severally and not jointly, agree to purchase, and the Company agrees to sell and issue to the Purchasers, such number of Ordinary Shares as set forth opposite each Purchaser’s name in Exhibit B (the “Investment Shares”), at the PPS per each Ordinary Share and for a total aggregate purchase price of up to US$450,000 (the “Purchase Price”), and the Purchasers and the Company agree to be bound by the obligations set forth herein and to grant to the other Parties hereto the rights set forth in this Agreement. |
The capitalization table of the Company, reflecting the issued and outstanding share capital of the Company on a Fully Diluted basis immediately prior to the Closing and immediately following the Closing, assuming the investment of the Purchase Price, and conversion of the Convertible Amount) is annexed hereto as Exhibit D (the “Cap Table”).
In this Agreement, “Fully-Diluted Basis” shall mean all issued and outstanding shares of the Company, including but not limited to (i) all Ordinary Shares; (ii) all Deferred Shares (iii) all securities convertible or exercisable into shares (being deemed so converted); (iv) all convertible investments, financings or loans (being deemed so converted); (v) all options, warrants and other rights to acquire shares or other securities exercisable for shares (being deemed allocated and so exercised); (vi) any adjustments of the number of issued shares triggered by or in connection with the transaction contemplated by this Agreement (if any), including anti-dilution adjustment; and (vii) a reservation for all shares, options or other equity awards, promised, reserved for and/or allocated to directors, officers, employees, consultants and service providers of the Company or its subsidiaries (being deemed issued, converted granted and/or exercised), including the Company’s option pool of which the unallocated pool which shall represent 2.27% of the Company’s share capital on a Fully- Diluted Basis immediately following the Closing, remains available for allocation thereunder as of the Closing.
| 1.2. | Conversion of Convertible Amount. Subject to the terms and conditions of this Agreement, at the Closing (i) each SAFE Holder’s portion of the Convertible Amount shall automatically convert into Conversion Shares in accordance with the terms of the SAFE Agreements at a price per share equal to 80% of the Price Per Share (the “Conversion Price Per Share”), for such number of Conversion Shares as respectively specified opposite such SAFE Holder’s name in Exhibit C attached hereto, and (ii) the Company shall issue and allot to each SAFE Holder, in consideration for the conversion of such SAFE Holder’s portion of the Convertible Amount, such number of Conversion Shares as set forth opposite such SAFE Holder’s name in Exhibit C hereto. |
| 1.3. | Termination of the Convertible Financing. The Company and each SAFE Holder hereby acknowledge and agree that, as of the Closing and upon conversion of such SAFE Holder’s portion of the Convertible Amount, the SAFE Agreements shall be deemed converted and discharged in full by the Company, and shall automatically terminate and expire and shall be of no further force and effect, without the need for any further action by the SAFE Holder or the Company, and the SAFE Holders shall have no rights, claims or demand whatsoever in respect thereof or the conversion hereunder and each SAFE Holder hereby waives any and all rights that may arise thereunder, including without limitation, any preemptive rights provided thereunder. In the event of any conflict between the terms of the SAFE Agreements and this Agreement, the terms of this Agreement shall prevail. Each SAFE Holder hereby waives such SAFE Holder’s right to notices, if any, under the SAFE Agreements in connection with the conversion hereunder. |
| 1.4. | Closing; Delivery. |
| 1.4.1. | The issuance and sale of the Investment Shares, the purchase thereof by the Purchasers, the issue of the Conversion Shares to the SAFE Holders, and the registration of the Purchased Shares in the names of the Investors in the share register of the Company, shall take place remotely via the exchange of documents and signatures, within 3 business days of the execution of this Agreement by all parties hereto (the “Closing”), or at such other date, time and place as shall be mutually agreed upon by the Company and each of the Investors. |
| 1.4.2. | At the Closing, the following transactions shall occur, which transactions shall be deemed to take place simultaneously and no transaction shall be deemed to have been completed or any document delivered until all such transactions have been completed and all required documents delivered. |
| 1.4.3. | At Closing, the Company shall deliver to the Investors: |
| (a) | A copy of the register of shareholders of the Company (the “Shareholders Register”), certified by an executive officer of the Company and prepared in accordance with Section 130 of the Companies Law, 5759-1999, as amended (the “Companies Law”), in which the respective Purchased Shares issued at the Closing are registered in the name of each of the Investors, in the form attached hereto as Schedule 1.4.3(a) |
| (b) | True and correct copies of written resolutions, or minutes of a meeting of the Board and meeting of the Company’s shareholders, substantially in the forms attached hereto as Schedule 1.4.3(b), approving and adopting in all respects the execution, delivery and performance by the Company of this Agreement and the transactions contemplated hereby, including, among others, (a) authorizing the issuance and sale of the Purchased Shares against payment of the Purchase Price therefor; (b) approving the execution, delivery and performance by the Company of all agreements contemplated herein to which the Company is party and any agreements, instruments or documents ancillary thereto; (c) waiving all preemption and participation rights with respect to this Agreement except for the participation rights of the Investors executing this Agreement; and (d) authorizing and approving a grant of additional options under the Company’s option plan as an adjustment due to the allocation of shares as a result of the Agreement. |
| 1.4.4. | At the Closing, each Purchaser shall cause the transfer in immediately available US Dollars to the Company of their respective portions of the Purchase Price, by wire transfer in accordance with the wire instructions or such other form of payment as is mutually agreed by the Company and each Purchaser. |
Notwithstanding anything to the contrary herein and in addition to the purchasing of the Purchased Shares, the Parties hereby agree that Medigus shall purchase 156,566 Ordinary Shares from the Company in exchange for [11,328] restricted ordinary shares, with no par value, of Medigus, free and clear of all mortgages, deeds of trust, pledges, charges, security interests, conditional sale agreement, loans and encumbrances and liens, represented by restricted American Depositary Shares (each representing fifteen (15) ordinary shares) of Medigus (each a “Medigus ADS” and collectively the “Medigus ADSs”).
| 1.5. | Deferred Closing. |
| 1.5.1. | During a period of 180 days following the Closing (the “Joinder Period”), additional investors, approved by the Board (each, a “Joining Party”), may subscribe to purchase additional Ordinary Shares of the Company at a price per share equal to the PPS or higher at one or more closings. The Parties agree that the Purchasers who purchased the shares at the Closing shall have a right to invest additional amounts at the PPS up to the Purchase Price before any other investor and/or shareholder of the Company that did not participate in the Initial Closing. Each such Joining Party shall execute a joinder to this Agreement (the “Joinder”). Following execution of each Joinder and the receipt of the amount invested by such Joining Party (each a “Deferred Closing”), the Company shall update |
Exhibit B to include each Joining Party, the number of Ordinary Shares being purchased, the amount being invested in consideration thereof, shall register such issuance in the Shareholders Register and shall report such issuance to the Israeli Registrar of Companies. Upon the completion of each Deferred Closing, each Joining Party at such Deferred Closing, shall be considered a “Purchaser” for the purposes herein, and shall be deemed to have entered this Agreement at the Closing for all intents and purposes, including for the purpose of receiving the representations and warranties of the Company and/or providing the representation and warranties of the Purchaser set forth herein.
| 1.5.2. | In addition to the foregoing and not withstanding anything to the contrary herein, Srugo shall be entitled to invest, in priority to any Joining Party, at any time until the Deferred Closing, in addition to his respective Purchase Amount, an amount equal to the unsubscribed Purchase Amount at a price per share equal to the PPS. For avoidance of doubt such amount shall be part of the total Purchase Amount and not in addition to the total Purchase Amount. |
| 1.6. | Anti-Dilution Protection |
| 1.6.1. | If, for a period of 24 months after the Effective Date of this Agreement, the Company issues any New Securities (as defined in the Company’s Articles of Association) at a price per share lower than the PPS (a “Down Round”), then, subject to all applicable securities laws, the Company shall, within 21 days, issue to each Investor, without the payment of any additional consideration by such Investor, such number of additional Ordinary Shares of the Company equal to the delta between (x) the aggregate number of Ordinary Shares issued to such Investor pursuant to this Agreement and (y) the aggregate number of Ordinary Shares issued and sold to such Investor under this Agreement, had it been calculated based on the price per share at that time and on the basis of the Down Round. |
| 1.6.2. | It is hereby agreed that the protection under this Section 1.6 shall be applicable only to Investors under this Agreement. |
| 2. | Representations and Warranties of the Company. |
The Company hereby represents and warrants to the Purchasers, that, except as set forth on the Disclosure Schedule delivered by the Company on the date hereof (the “Disclosure Schedule”), which exceptions shall be deemed to be part of the representations and warranties made hereunder, the following representations are true, correct and complete as of the date hereof and as of the Closing (as if made on the Closing Date); except, in each case, as to such representations and warranties that address matters as of a particular date, which are true, correct and complete only as of such date. The Disclosure Schedule shall be arranged in sections and subsections corresponding to the numbered and lettered sections and subsections contained in this Section 2, and the information set forth in any section or subsection of the Disclosure Schedule shall apply to and qualify (a) the representation and warranty set forth in this Agreement to which it corresponds, and (b) whether or not an explicit reference or cross-reference is made, each other representation and warranty set forth in this Agreement for which it is reasonably apparent on its face that such information is relevant to such other section.
| 2.1. | Authorization. The Company has all necessary power and authority to execute and deliver this Agreement, and any other agreements contemplated hereby, or which are ancillary hereto (collectively, the “Transaction Documents”), and to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. Upon issuance to Purchasers, the Purchased Shares will be duly issued, free and clear of any liens (except for any liens imposed by the Purchasers), and such Purchased Shares are not subject to any voting trust agreement or other contract relating to the ownership, voting, dividend rights or disposition of such Purchased Shares, except as set forth in the Articles. The Company is not in violation nor default of any of the provisions of its Articles of Incorporation. No proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification. |
| 2.2. | Approvals; No Breach. This Agreement is, and any other agreements contemplated hereby or which are ancillary hereto, when executed and delivered by the Company shall be, duly and validly authorized, executed and delivered by the Company and constitute the valid and legally binding obligations of the Company, legally enforceable against the Company in accordance with their respective terms, subject to (i) judicial principles respecting election of remedies or limiting the availability of specific performance, injunctive relief or other equitable remedies, (ii) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect generally relating to or affecting creditors’ rights; and (iii) public policy concerns (including, without limitation, the ability of a court to refuse to enforce unconscionable covenants and similar provisions). No consent, approval, order, license, permit, action by, or authorization of or designation, declaration, or filing with any governmental authority on the part of the Company is required that has not been, or will not have been, obtained by the Company in connection with the valid execution, delivery and performance of this Agreement and the other agreements contemplated hereby or ancillary hereto or the offer, sale, and transfer of the Purchased Shares. Neither the execution and delivery of this Agreement and any other agreements contemplated hereby or ancillary hereto by the Company nor compliance by the Company with the terms and provisions hereof or thereof, will conflict with, result in a breach or violation of, any of the terms, conditions and provisions of: (i) any judgment, order, injunction, decree, or ruling of any court or governmental authority, domestic or foreign to which the Company is party or by which it is bound, (ii) any agreement, contract, lease, license or commitment to which the Company is a party or to which he is subject to, (iii) applicable law, statute, ordinance, or regulation, or (iv) the Articles. |
| 2.3. | Disputes. There is no suit, action, proceeding, claim or investigation pending or threatened in writing against the Company, which, if determined or resolved adversely in accordance with the plaintiff’s demands, could challenge or seek to prevent, enjoin, alter or materially delay the transactions contemplated by this Agreement. |
| 2.4. | Capitalization. |
| 2.4.1. | The authorized share capital of the Company consists of (i) 19,752,250 Ordinary Shares; and (ii) 311,457 Deferred Shares (as defined in the Articles of Association) on or immediately prior to the Closing as set forth in the Company’s articles of association (the “Articles of Association”). The authorized share capital of the Company immediately following the Closing shall consist of (i) 19,752,250 Ordinary Shares; and (ii) 311,475 Deferred Shares. |
| 2.4.2. | The outstanding securities of the Company, on a Fully-Diluted Basis as of the date hereof, are owned by and registered in the names of such security holders, and in such numbers as specified in the Cap Table in Exhibit D. |
| 2.4.3. | Other than those included in the Cap Table, there are no other shares of any class or series of shares of the Company authorized, issued or outstanding. |
| 2.4.4. | Other than (i) 938,967 Ordinary Shares representing 18.37% of the Company’s share capital on a Fully Diluted basis immediately following the Closing, for issuance of, and grant of options (including the additional number of options to be granted as an adjustment as a result of the allocation of shares under this Agreement) or other equity awards exercisable into, Ordinary Shares of the Company to directors, officers, employees, consultants and service providers of the Company or its subsidiaries under the Company’s 2021 Share Incentive Plan (the “Plan”) the Company has no share capital reserved for issuance of outstanding options, equity awards or convertible instruments of any kind. Exhibit D sets forth each outstanding or promised option or equity award. |
| 2.4.5. | The issued and outstanding shares of the Company are duly and validly authorized and issued, fully paid and non-assessable, and were offered and issued in compliance with the provisions of the Articles of Association as in effect at the time of each such issuance and in compliance with all applicable corporate and securities laws. |
| 2.4.6. | Except for the rights of the shareholders of the Company under the Articles of Association, no person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by this Agreement. |
| 2.4.7. | The Company has not declared or paid any dividends or authorized or made any distribution upon or with respect to any class or series of its share capital. |
| 2.5. | Solvency. The Company is solvent and is currently paying its debts as they become due. |
| 2.6. | Material Changes. Other than as listed on Section 2.6 of the Disclosure Schedule, since August 25th, 2021, there has been no event, occurrence or development that has had or that would reasonably be expected to result in a material adverse effect on the legality, validity and enforceability of the Agreement and the Transaction Documents, a material adverse effect on the results of operations, assets, business, prospects or condition (financial or otherwise) of the Company or a material adverse effect on the Company’s ability to perform in all material respects on a timely basis its obligations under the Transaction Documents (either of the above a “Material Adverse Effect”). |
| 2.7. | Financial Statements; No Undisclosed Liabilities. |
| 2.7.1. | The Company has no liabilities or obligations, contingent or otherwise, other than liabilities incurred in the ordinary course of business, which, individually and in the aggregate, do not exceed US50,000. |
| 2.7.2. | The Company is not a guarantor or indemnitor of any debt or obligation of another, nor has the Company given any loan, security or otherwise agreed to become liable for any obligation of any person. No person has given any guarantee of, or security for, any obligation of the Company. The Company did not extend any loans or advances to any person, other than advances for expenses to its employees in the ordinary course of business. |
| 2.8. | Assets and Properties. The Company has good and marketable title to all of the tangible or personal properties and assets owned by the Company which are material to the business of the Company as currently conducted as now conducted and as proposed to be conducted, and such properties and assets are free and clear of all mortgages, deeds of trust, liens, pledges, charges, security interests, conditional sale agreement, loans and encumbrances, except for statutory liens for the payment of current taxes that are not yet delinquent and encumbrances and liens that arise in the ordinary course of business and do not materially impair the Company’s ownership or use of such property or assets. The Company does not lease any assets or tangible property. |
| 2.9. | Intellectual Property. The Company owns, or has rights to use, all patents, patent applications, trademarks, trademark applications, trade and service mark registrations, service marks, trade names, trade secrets, inventions, copyrights, technology, know-how, licenses and other intellectual property rights, proprietary rights and similar rights in connection with their respective businesses (collectively, the “Intellectual Property Rights”). All the registered Intellectual Property Rights of the Company has expired, terminated or been abandoned. The Company has not received a written notice of a claim or otherwise has any knowledge that the Intellectual Property Rights violate or infringe (and will not infringe) the rights of any person. There is no pending or, to the Company’s knowledge, threatened action, suit, proceeding or claim by others challenging the validity or scope of any Company Intellectual Property or the Company’s Intellectual Property Rights. |
| 2.10. | Section 2.10 of the Disclosure Schedule is a complete list of all (i) patents, trademarks, service marks, trade names, copyrights, domain name, registration with respect to any of the Company’ Intellectual Property and any applications for and under any of the foregoing; and (ii) unregistered trademark. |
| 2.11. | All of the Company’s employees and consultants, past and present, have entered into written agreements with the Company assigning to the Company all rights, title and interests in Company Intellectual Property developed, invented, programmed, designed, conceived or reduced to practice (either alone or jointly with others) in the course of their employment or engagement, as the case may be, or that relate to the Company’s business as currently conducted and as currently proposed to be conducted, and explicitly waiving all non-assignable rights (including moral rights) and rights to receive royalties or compensation in connection therewith (including, without limitation, under Section 134 of the Israeli Patent Law, 1967). Any and all Company Intellectual Property which has been, is currently being or will be developed by any employee or consultant of the Company is and shall be the sole property of the Company. The Company has taken all required security measures to protect the secrecy, confidentiality and value of all the Company Intellectual Property, which measures are reasonable and customary in the industry in which the Company operates and, to the Company’s knowledge, there has been no breach of security of the Company’s systems involving any such information. To the Company’s knowledge, it will not be necessary to use any of the developments, ideas, inventions, trade secrets, proprietary information or other intellectual property of any of its employees or consultants made prior to their employment or engagement by the Company. |
| 2.12. | “Company Intellectual Property” means all patents, patent applications, trademarks, trademark applications, service marks, service mark applications, trade names, copyrights, trade secrets, know-how, inventions, designs, works of authorship, computer programs and technical data, domain names, mask works, information and proprietary rights and processes, similar or other intellectual property rights, subject matter of any of the foregoing, tangible embodiments of any of the foregoing, licenses and rights in, to and under any of the foregoing, in any and all such cases that are owned or used by the Company in the conduct of the Company’s business as currently conducted and as currently proposed to be conducted. |
| 2.13. | Labor Matters. |
| 2.13.1. | The Company has one employee and has complied, in all material respects, with all applicable employment laws policies, procedures and agreements relating to employment, and terms and conditions of employment. The Company has paid in full to its respective employee all wages, salaries, commissions, bonuses, benefits and other compensation due and payable to such employee on or prior to the date of this Agreement. The Company has complied in all material respects with the applicable laws relating to the proper withholding and remittance to the proper tax and other authorities of all sums required to be withheld from employees or persons deemed to be employees under applicable laws. The Company’s employee is subject to Section 14 Arrangement under the Israeli Severance Pay Law, 1963 from the commencement date of his employment and on the basis of his entire salary. The Company’s liability for any obligations to pay any amount of severance payment, pension, accrued vacation, and other social benefits and contributions, under applicable law or contract, or any other payment of substantially the same nature, is fully funded by deposit of funds in severance funds, pension funds, managers insurance policies or provident funds (and if not required to be so funded) adequate provisions have been made in the Company’s financial statements. |
| 2.13.2. | The Company is not a party to, bound by or subject to, and no employee of the Company benefits from, any collective bargaining agreement, collective labor agreement, extension orders (tzavei harchava) (other than extension orders that apply to all employees in Israel generally), or other contract or arrangement with a labor union, trade union or other organization or body, to provide benefits or working conditions beyond the minimum benefits and working conditions required by applicable law. No labor union has requested or has sought to represent any of the employees, representatives or agents of the Company, nor is the Company aware of any labor organization activity involving its employees. |
| 2.14. | Governmental Consent. No consent, approval order or authorization of, or registration, qualification, designation, declaration or filing with any federal, state or local governmental authority on the part of the Company is required in connection with the consummation of the transactions contemplated by this Agreement. |
| 2.15. | Taxes. The Company has filed all tax returns and reports (including information returns and reports) as required by law. To the best of the Company’s knowledge these returns and reports are true and correct. The Company has paid all taxes and other tax assessments due. The Company has never had any tax deficiency proposed or assessed against it and has not executed any waiver of any statute of limitations on the assessment or collection of any tax or governmental charge. The Company has not received notice from any governmental authority that its tax returns, sales or use tax returns has been or is currently being audited. Since December 31, 2022, the Company has not incurred any taxes, assessments or governmental charges other than in the ordinary course of business and the Company has made adequate provisions on its books of account for all taxes, assessments and governmental charges with respect to its business, properties and operations for such period. The Company has withheld or collected from each payment made to any employee, the amount of all taxes required to be withheld or collected therefrom, and has paid the same to the proper tax receiving officers or authorized depositories. The Company has not granted any compensation, equity or award that could be deemed deferred compensation for which the Company would have been required to withhold taxes, and neither the Company nor any person that is a member of the same controlled group as the Company or under common control with the Company has any liability or obligation to make any payments or to issue any equity award or bonus that could be deemed deferred compensation for which the Company would have been required to withhold taxes. |
| 2.16. | Budget. The Company’s Budget is attached hereto as Schedule 2.16 (the “Budget”). The Budget has been prepared in good faith and with reasonable professional care by the Company, and the Company is unaware of any fact or circumstance which as of the Closing makes the Budget untrue, unreasonable or misleading in any material way. |
| 2.17. | Corporate Documents. Except for amendments necessary to satisfy the representations, warranties or conditions contained in the Agreement (the forms of which have been approved by Purchaser), the Articles of Association are in the form provided to counsel for the Purchasers. |
| 2.18. | No Power of Attorney. There are no outstanding powers of attorney executed on behalf of the Company providing or delegating rights to act on its behalf, and no person, as agent or otherwise, is entitled to or authorized to bind or commit the Company to any obligation and the Company is not aware of any person purporting to do so. |
| 2.19. | Full Disclosure. The Company has provided Purchasers with all information the Purchasers have requested. Neither this Agreement (including the Schedules hereto) nor any certificates made or delivered in connection herewith contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements herein or therein not misleading, in view of the circumstances in which they were made. |
| 2.20. | Medigus ADSs. in connection with the issuance of the Medigus ADS’ assigned, transferred and delivered to the Company, the Company represents and warrants: |
| 2.20.1. | the Company understands that the sale of the Medigus ADSs is not registered under the 1933 Act and that the issuance hereof to the Company is intended to be exempt from registration under the 1933 Act pursuant to Regulation D. The Company is an “accredited investor,” as such term is defined in Rule 501 of Regulation D or, if not an accredited investor, otherwise meets the suitability requirements of Regulation D and Section 4(a)(2) of the 1933 Act. The certificates representing the Medigus ADSs issued to the Company shall be endorsed with the following legends, in addition to any other legend required to be placed thereon by applicable securities laws: |
“THIS SECURITY HAS BEEN ACQUIRED FOR INVESTMENT AND HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (“SECURITIES ACT”), OR APPLICABLE STATE SECURITIES OR “BLUE SKY” LAWS.” “TRANSFER OF THESE SECURITIES IS PROHIBITED UNLESS A REGISTRATION STATEMENT UNDER THE SECURITIES ACT WITH RESPECT TO SUCH SECURITY SHALL THEN BE IN EFFECT AND SUCH TRANSFER HAS BEEN QUALIFIED UNDER ALL APPLICABLE STATE SECURITIES OR “BLUE SKY” LAWS, OR AN EXEMPTION THEREFROM SHALL BE AVAILABLE UNDER THE ACT AND SUCH LAWS.”
| 2.20.2. | the Company acknowledges that neither the SEC, nor the securities regulatory body of any state or other jurisdiction, has received, considered or passed upon the accuracy or adequacy of the information and representations made in this Agreement. |
| 2.20.3. | the Company understands that the Medigus ADSs may not be sold, transferred, or otherwise disposed of without registration under the 1933 or an exemption therefrom, and that in the absence of an effective registration statement covering the Medigus ADSs acquired hereunder or any available exemption from registration under the 1933 Act, the Medigus ADSs acquired hereunder may have to be held indefinitely and the Corporation further acknowledges that the Medigus ADSs acquired hereunder may not be sold pursuant to Rule 144 promulgated under the 1933 Act unless all of the conditions of Rule 144 are satisfied, including, without limitation, the Purchaser’s compliance with the reporting requirements under the Exchange Act. |
| 3. | Representations and Warranties and Covenants of the Purchasers. |
The Purchasers hereby represents and warrants to the Company, severally and not j ointly, as follows:
| 3.1. | Enforceability. The Purchaser has full power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. All corporate action on the part of the Purchaser necessary for the authorization, execution, delivery, and performance of all of Purchaser’s obligations under this Agreement has been taken or will be taken prior to the Closing. This Agreement is duly and validly authorized, executed and delivered by the Purchaser and constitutes the valid, binding and enforceable obligations of the Purchaser, legally enforceable against the Purchaser in accordance with his respective terms, except as limited by (i) judicial principles respecting election of remedies or relating to the availability of specific performance, injunctive relief, or other equitable remedies (ii) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect generally relating to or affecting creditors’ rights; and (iii) public policy concerns (including, without limitation, the ability of a court to refuse to enforce unconscionable covenants and similar provisions). |
| 3.2. | Consents; Non-Contravention. No consent, approval, order, license, permit, action by, or authorization of or designation, declaration, or filing with any governmental authority on the part of the Purchaser is required that has not been obtained by the Purchaser in connection with the valid execution, delivery and performance of this Agreement, and the purchase of the Purchased Shares hereunder, legally enforceable against the Purchaser in accordance with his respective terms, subject to (i) judicial principles respecting election of remedies or limiting the availability of specific performance, injunctive relief or other equitable remedies, (ii) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect generally relating to or affecting creditors’ rights; and (iii) public policy concerns (including, without limitation, the ability of a court to refuse to enforce unconscionable covenants and similar provisions). Neither the execution, delivery and performance by the Purchaser of this Agreement or any ancillary document thereto, nor compliance by the Purchaser with the terms and provisions hereof or thereof, shall conflict with, or result in a breach, violation or default (or event which with the giving of notice or lapse of time, or both, would become a default) of, any of the terms, conditions and provisions of: (i) any judgment, order, injunction, decree, or ruling of any court or governmental authority, domestic or foreign to which the Purchaser is party or by which it is bound, (ii) any agreement, contract, lease, license or commitment to which the Purchaser is a party or by which it is bound, or to which any of its properties is subject, or (iii) applicable law, statute, ordinance, or regulation. |
| 3.3. | General Experience. The Purchaser acknowledges that it can bear the economic risk of its investment, and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Purchased Shares and has the capacity to protect its own interests. The Purchaser represent and warrant that the Purchased Shares are purchased on an “As Is” basis, subject only to the specific representations of the Company set forth above (with the acknowledgment that the Company has not provided any other representations or warranties, expressed or implied). |
| 3.4. | Purchase for Own Account. The Purchaser represents and agrees that the Purchased Shares are purchased only for investment, for its own account, and without a view to, or any present intention to sell or otherwise distribute the Purchased Shares. |
| 4. | Covenants of the Company. |
| 4.1. | Use of Proceeds. The Company will use the proceeds from the sale of the Purchased Shares for its on-going operations and activities. |
| 4.2. | Rights to Certain Financial Information. Investors shall have the rights included in this Section 4 of the Agreement, until either Investor or any of its affiliates (with the term “affiliate” having the meaning set forth under Rule 405 under the Securities Act of 1933, as amended) is required to issue immediate and periodic reports pursuant to the Israeli Securities Law 5728-1968, as amended (the “Israeli Securities Law”) and/or the Securities Exchange Act of 1934, as amended (the “Exchange Act” and together with the rules of a stock exchange on which Purchaser’s securities are listed for trade and the Israeli Securities Law, “Securities Law”) (the “Rights Period”). |
| 4.2.1. | During the Rights Period, at the request of the Investors, the Company shall deliver to Investors: |
| (a) | Annual report and financial statements of the Company (including a balance sheet, statement of income, statement of shareholders equity, statement of comprehensive income, statement of cash flow and related notes to the financial statements, as well as subsequent event letters for the dates designated by the Purchasers) in respect of each fiscal year, signed by the Company, audited by a reputable accounting firm and accompanied by a customary signed opinion of such firm, within three (3) days from the approval of such financial statements by the Board but in any event no later than: (x) thirty (30) days prior to the end of the first quarter of a fiscal year (i.e., March 31st);. In addition, the Company shall deliver to the Purchaser the draft (an Excel file containing the most up to date figures and notes) of the above within fifty (50) days after the end of such fiscal year prior to furnishing the signed financial statements; |
| (b) | Semi-annual financial statements of the Company for the first two (2) fiscal quarters of each fiscal year of the Company and, if required by the Purchasers under the Securities Law or accounting standard, quarterly financial statements in respect of each of the first three (3) fiscal quarters of each fiscal year of the Company (including a balance sheet, statement of income, statement of shareholders equity, statement of comprehensive income, and statement of cash flow and related notes to the financial statements, as well as subsequent event letters for the dates designated by the Purchasers), signed by the Company and un-audited but reviewed by a reputable accounting firm and accompanied by a customary signed review report of such firm, within three (3) days from the approval of such financial statements by the Company’s board of directors but in any event within forty (40) days following the end of such fiscal quarter of the Company. In addition, the Company shall deliver to the Purchasers the draft of the above (an Excel file containing the figures and notes) after sending it to the Board (but in any event, no later than within thirty (30) days following the end of such fiscal quarter prior to furnishing the signed financial statements); |
| (c) | Consent letters from the accountants and appraisals (insofar as the Company’s financial statements include a valuation report) for the inclusion thereof in the Purchaser’s filings and financial statements, to the extent that the Purchaser determines that such inclusion is required under the Securities Law; and |
| (d) | Any other information and/or documentation reasonably required by the Purchaser to enable it to duly prepare its audited and non-audited consolidated financial statements (both annual and quarterly) and other required reports. |
| 4.2.2. | All financial statements and other information provided pursuant to this Section 4 shall be: (i) prepared in accordance with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board, or if Purchasers is reporting under a different accounting standard (such as U.S. GAAP), shall include a reconciliation to that standard; and (ii) audited, in accordance with the Public Company Accounting Oversight Board (PCAOB) rules and standards. The said financial statements will be prepared by independent accountant, selected by the Company and approved by the Company’s board of directors. Such financial statements and other information shall reflect any adjustments or modifications reasonably requested by the Purchaser which are necessary for the Purchaser to comply with accounting standards and reporting requirements applicable to it under the Securities Law (including translation to English and $ presentation). |
| 4.2.3. | The Parties hereby agree that all costs related to the preparation of the financial statements and other information listed in section 4.2.1, shall be borne solely by Medigus Ltd. |
| 4.2.4. | During the Rights Period, the Company shall make best efforts to cooperate to the extent reasonably possible, with the Investors in order to assist the Investors in meeting their obligations under the US SOX and/or Israeli SOX. |
| 4.3. | Rights to Other Information. |
| 4.3.1. | During the Rights Period, in the event that an Investor determines, after consultation with its legal counsel or auditors, that information with respect to the Company is required to be disclosed by the Investor either: (i) by report under the Securities Law; or (ii) in any periodic report, prospectus, any other document prepared in connection with any offerings of securities by the Investor, or any other public report required under the Securities Law (the information under sub sections (i) and (ii) above will be referred to as “Material Information”), then the Company shall provide such Material Information to the Investor (including a description of such Material Information) within a reasonable period following a written request of the Investor to enable the Investor to comply with its reporting obligations in a timely manner and in accordance with the Securities Law and applicable rules. It is hereby clarified that in the event the Material Information has not been disclosed yet to the public by the Company, the Parties shall cooperate in good faith to allow the Investor to meet its reporting obligations without prejudicing those of the Company. |
| 4.3.2. | During the Rights Period, in the event that the Company or the Investors become aware of any Material Information relating to the Company, then the Company shall provide to the Investors any such Material Information (including a written description of such Material Information) within a reasonable period following becoming aware of such Material Information or within a reasonable period following receiving a written request from an Investor to disclose such Material Information, whichever is earlier, in order for the Investor to comply with its disclosure obligations in a timely manner and in accordance with the Securities Law and applicable rules. It is hereby clarified that in the event the Material Information has not been disclosed yet to the public by the Company, parties shall cooperate in good faith to allow the Investor to meet its reporting obligations without prejudicing those of the Company. |
| 5. | Indemnification. Subject to the provisions of this Section 5, and up to an aggregate amount equal to the amount of the respective portion of the Purchase Price, plus the respective portion of the Convertible Amount under the applicable SAFE Agreement, the Company will indemnify and hold each Investors and if applicable, its directors, officers, shareholders, members, partners, employees and agents (and any other person of functional equivalence to such holders of such titles) (each, a “Purchaser Party”) harmless from any and all losses, liabilities, obligations, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation that any such Purchaser Party may suffer or incur as a result of or relating to (a) any breach of any of the representations, warranties, covenants or agreements made by the Company in this Agreement or in the other Transaction Documents or (b) any action instituted against the Purchaser Parties in any capacity, or any of them or their respective Affiliates, by any shareholder of the Company who is not an Affiliate of Purchaser, with respect to any of the transactions contemplated by the Transaction Documents (unless such action is solely based upon a material breach of Purchaser’s representations, warranties or covenants under the Transaction Documents or any violations by Purchaser of state or federal securities laws or any conduct by Purchaser Party which is finally judicially determined to constitute fraud, gross negligence or willful misconduct) . If any action shall be brought against any Purchaser Party in respect of which indemnity may be sought pursuant to this Agreement, such Purchaser Party shall promptly notify the Company in writing, and the Company shall have the right to assume the defense thereof with counsel of its own choosing reasonably acceptable to the Purchaser Party. Purchaser Party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Purchaser Party except to the extent that (i) the employment thereof has been specifically authorized by the Company in writing, (ii) the Company has failed after a reasonable period of time to assume such defense and to employ counsel or (iii) in such action there is, in the reasonable opinion of counsel, a material conflict on any material issue between the position of the Company and the position of such Purchaser Party, in which case, if the Purchaser Party notifies the Company in writing that it elects to employ separate counsel at the expense of the Company, the Company shall be responsible for the reasonable fees and expenses of no more than one such separate counsel. The Company will not be liable to any Purchaser Party under this Agreement (y) for any settlement by a Purchaser Party effected without the Company’s prior written consent, which shall not be unreasonably withheld or delayed; or (z) to the extent, but only to the extent that a loss, claim, damage or liability is attributable to any Purchaser Party’s breach of any of the representations, warranties, covenants or agreements made by such Purchaser Party in this Agreement or in the other Transaction Documents. The indemnification required by this Section 5 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or are incurred. The indemnification provided hereunder and the enforcement of such indemnification shall be the exclusive remedy available to the Purchaser Parties under this Agreement, other than for fraud or intentional misrepresentation; provided that this provision does not limit the right to seek specific performance, a restraining order or injunctive relief with respect to any provision of this Agreement. The indemnification provision described above shall be limited for a period of 12 months from the Closing Date. |
| 6. | General Provisions. |
| 6.1. | Successors and Assigns. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. No Investor may transfer any shares purchased hereunder unless each transferee agrees to be bound by the terms of this Agreement. |
| 6.2. | Entire Agreement. This Agreement (including the exhibits and schedules hereto), and the other Transaction Documents constitute the full and entire understanding and agreement between the parties with respect to the subject matter hereof, and supersede all prior agreements and understandings, both written and oral, among any of the parties hereto, with respect to the subject matter hereof (with no concession being made as to the existence of any such prior agreements or understandings). |
| 6.3. | Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the state of Israel, without reference to its conflict of laws provisions. The parties hereto agree to exclusively submit to the jurisdiction of the competent courts of Tel Aviv - Jaffa with respect to the breach or interpretation of this Agreement or the enforcement of any and all rights, duties, liabilities, obligations, powers, and other relations between the parties arising under this Agreement. |
| 6.4. | Counterparts; Electronic Signature. This Agreement may be executed and delivered by electronic signature and in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. |
| 6.5. | Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. References to sections or subsections shall be deemed to be references to the sections of Agreement, unless otherwise specifically stated herein. |
| 6.6. | Notices. All notices and other communications given or made pursuant to this Agreement shall be in writing and shall be deemed effectively given upon the earlier of actual receipt or: (a) personal delivery to the party to be notified, (b) when sent, if sent by facsimile or electronic mail during normal business hours of the recipient, and if not sent during normal business hours, then on the recipient’s next business day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) business day after deposit with a nationally recognized overnight courier, freight prepaid, specifying next business day delivery, with written verification of receipt. All communications shall be sent to the respective parties at their address as set forth in the preamble to this Agreement or in Exhibit A and Exhibit B, or to such address, facsimile number or electronic mail address as subsequently modified by written notice given in accordance with this Section 6.6. |
| 6.7. | No Finder’s Fees. Each party represents that it neither is nor will be obligated for any Finder’s fee or commission in connection with this transaction. |
| 6.8. | Amendments and Waivers. Any term of this Agreement may be amended, terminated or waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of all of the parties hereto. Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any party, shall be cumulative and not alternative. |
| 6.9. | Severability. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision. |
| 6.10. | Delays or Omissions. No delay or omission to exercise any right, power or remedy accruing to any party under this Agreement, upon any breach or default of any other party under this Agreement, shall impair any such right, power or remedy of such non-breaching or non-defaulting party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. |
[Remainder of Page Intentionally Left Blank]
[Signature page to follow]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first written above.
| COMPANY: | ||
| POLYRIZON LTD., | ||
| By: | /s/ Tomer Izraeli | |
| Name: | Tomer Izraeli | |
| Title: | CEO | |
| PURCHASERS: | ||
| MEDIGUS LTD. | ||
| By: | /s/ Eli Yoresh | |
| Name | Eli Yoresh | |
| Title: | Chairman | |
| SRUGO | ||
| By: | ||
| Name: | ||
| Title: | ||
| [ | ] | |
| By: | ||
| Name: | ||
| Title: | ||
Exhibit 4.16
OPERATING AGREEMENT
OF
ZIG MIAMI 54, LLC
A FLORIDA LIMITED LIABILITY COMPANY
This Operating Agreement (this “Agreement”) of ZIG MIAMI 54, LLC, a Florida limited liability company (the “Company”) is entered into as of this 13th day of September 2023 (the “Effective Date”) by and between ZIG INVESTMENT GROUP, LLC, a Florida limited liability company (the “ZIG Member”), MEDIGUS LTD., a company incorporated under the laws of the State of Israel (the “Medigus Member”, and together with the ZIG Member and such other Persons who may be admitted as substituted or additional members of the Company from time to time, each a “Member” and collectively, the “Members”). All capitalized terms used herein have the meanings set forth in Schedule I hereto.
FOR VALUABLE CONSIDERATION, the receipt and sufficiency of which is hereby acknowledged, the parties hereto covenant and agree as follows:
ARTICLE I
FORMATION
1.1. Formation. The parties hereto have formed the Company on July 17, 2023 pursuant to the provisions of the Florida Limited Liability Company Act codified in Florida Statutes Chapter 605 (the “Act”). The operation of the Company shall be governed by the terms of this Agreement and the Act. To the extent permitted by the Act, the terms and provisions of this Agreement shall control if there is a conflict between the Act and this Agreement.
1.2. Name. The business and affairs of the Company shall be conducted under the name “ZIG MIAMI 54, LLC”.
1.3. Purpose. The Company is organized for the purposes of (a) buying, owning, developing, improving, managing, selling, and otherwise dealing with that certain property located at 5401 NW 2nd Avenue, 173 NW 54th Street and 183 NW 54th Street, Miami, Florida (collectively, the “Property”), directly or indirectly, through one or more subsidiaries (each a “Subsidiary” and collectively, the “Subsidiaries”), and (b) to engage in any lawful act or activity for which limited liability companies may be organized under the Act that are incidental or necessary to carry on the business of the Company as described in subsection (a) above.
1.4. Registered Agent. The registered agent of the Company shall be Militzok & Associates, P.A. and the registered agent address shall be 1250 S. Pine Island Road, Suite 225, Plantation, Florida 33324. The Members may change the registered agent and the address of the registered agent from time to time.
1.5. Principal Place of Business. The principal business address of the Company shall be 1250 S. Pine Island Road, Suite 225, Plantation, Florida 33324.
1.6. Duration. The term of the Company commenced upon the filing of the Company’s Articles of Organization (the “Articles”) with the Florida Department of State and shall continue in perpetuity, unless sooner dissolved as provided herein.
1.7. Fiscal Year; Tax Year. The Company’s fiscal year and tax year shall commence on January 1 and end on December 31 of each calendar year.
ARTICLE II
MEMBERS
2.1 Initial Members. The initial Members of the Company, their Initial Capital Contributions and their initial Percentage Interests in the Company are as follows:
| Member | Initial Capital Contribution | Percentage Interest | ||||||
| ZIG Member | $ | 0.00 | 40 | % | ||||
| Medigus Member | $ | 2,000,000.00 | 60 | % | ||||
2.2 Additional Members. Additional Members may be admitted to the Company only upon Unanimous Consent of the Members and upon compliance with the provisions of this Agreement.
2.3 No Withdrawal. Without the consent of the other Members, no Member shall be permitted to withdraw from the Company, withdraw any part of its Capital Contributions from the Company, demand a return of its Capital Contributions, or receive property other than cash in return for its Capital Contributions.
2.4 No Personal Liability. Except as otherwise provided in the Act, by Applicable Law, or in this Agreement, no Member will be obligated personally for any debt, obligation, or liability of the Company or the other Members, whether arising in contract, tort, or otherwise, solely by reason of being a Member.
2.5 No Interest in Company Property. No Company Property shall be deemed to be owned by any Member individually, but shall be owned by, and title shall be vested solely in, the Company. Without limiting the foregoing, each Member hereby irrevocably waives, during the term of the Company, any right that such Member may have to maintain any action for partition with respect to Company Property.
ARTICLE III
MANAGEMENT
3.1 Management. Except as otherwise provided herein, the powers of the Company shall be exercised by or under the authority of, and the business and affairs of the Company shall be managed under the direction of, a manager (the “Manager”). Except as otherwise provided herein, the Manager shall be designated by Unanimous Consent of the Members and shall hold office until a successor has been elected by the Members or until removed and replaced. The initial Manager of the Company shall be the ZIG Member.
3.2 General Powers of the Manager. Except as otherwise set forth herein, the Manager is vested with authority to take all actions necessary and proper in order to carry out the business of the Company and is authorized to execute documents on behalf of the Company (including loan applications, loan documents, deeds, closing statements, affidavits, checks, leases, contracts, building plans, permits, and other applications). Moreover, except as expressly set forth herein, the Manager shall be responsible for (a) all renovation activities, management of the Property, and leasing of the Property, and (b) future development of new and supplementary structures on the Property. In addition, the parties acknowledge and agree that, per the Renovation Plan, it is anticipated that the Company will refinance the existing Seller Loan with a mortgage loan issued by a third-party commercial lender as soon as the Manager determines, in its reasonable discretion, that it is feasible, or economically desirable, to do so. In connection therewith, the Medigus Member agrees to reasonably and diligently cooperate with any requests for documentation or information by the prospective lender, and to execute any documents reasonably requested by the prospective lender, in order to comply with underwriting requirements and otherwise qualify for such refinancing.
3.3 Duties of the Manager. Without limiting anything herein, the ZIG Member, in its capacity as Manager, shall manage or cause to be managed, the affairs of the Company in a prudent and business-like manner, in accordance with the approved Renovation Plan, the Renovation Budget and Operating Budget, and shall devote such time and shall cause the Key Person to devote such time to the Company’s business and affairs as it shall, in its discretion exercised in good faith, determine is reasonably necessary for the conduct of such business and affairs and the performance of its duties and obligations hereunder. In carrying out such obligations, the ZIG Member, in its capacity as Manager, shall, in a manner the ZIG Member reasonably believes to be in the best interests of the Company, and with the degree of care, skill, prudence and diligence that is customarily exercised by developers and operators of similar projects in Miami (subject to, in all cases, consents required for the taking of Major Decisions and Fundamental Decisions):
(a) Obtain and maintain, in the name of the Company such public liability, hazard and other insurance as may be deemed necessary or appropriate by the ZIG Member and approved by the Medigus Member, and which is, at a minimum, consistent with the requirements of the Senior Financing Documents;
(b) Deposit all funds of the Company in one or more separate bank accounts owned by the Company, with such banks as the ZIG Member may designate, which funds shall not be commingled with any other funds of the ZIG Member or any Affiliate thereof;
(c) Maintain, at the office of the Company, or electronically, complete and accurate records and books of account of the Company (including copies of all leases and containing such information as shall be necessary to compute allocations and distributions), and make such records and books of account available for inspection and copying by the Medigus Member (or its duly authorized representatives), at its reasonable expense, during ordinary business hours, and upon fourteen (14) days’ prior written notice;
(d) Take all proper and necessary actions reasonably required in the exercise of the Manager’s commercially reasonable judgment to cause the Company and all third parties at all times to perform and comply with the provisions of any loan document, agreement, mortgage, lease or other contract, instrument or agreement to which the Company is party or which affects any Company Property or the operation thereof; (e) Apply to and negotiate with the requisite Governmental Authorities to obtain and maintain any agreements, approvals, permits and licenses that are necessary for the Property;
(f) Cause the Company and each Subsidiary to do or cause to be done all things necessary to preserve, renew and keep in full force and effect the existence, rights, licenses, permits and franchises of the Company necessary for operation of the Property, and comply with all legal requirements applicable to the Company and the Property; and
(g) Cause the Company and each Subsidiary to observe, perform and fulfill each and every covenant, term and provision of each Senior Financing Document, lease and other contracts relating to the ownership, management, development, use, operation, leasing, maintenance, repair or improvement of the Property, in each case, as to which the Company or such Subsidiary is party to or otherwise bound.
3.4 Major Decisions; Fundamental Decisions. Notwithstanding anything to the contrary contained in this Article III or in any other provision of this Agreement:
(a) Until such time that the Medigus Member has received a return of one hundred percent (100%) of its Initial Capital Contributions and has been fully repaid for any outstanding Member Loans (together with interest thereon), the ZIG Member, as Manager, shall not take any of the actions or make any of the decisions, or cause or consent to any Subsidiary taking any such action or making such decision, set forth on Exhibit A hereto (each a “Major Decision”) except with the prior written consent of the Medigus Member; and
(b) Thereafter, following receipt by the Medigus Member of one hundred percent (100%) of its Initial Capital Contributions and receipt in full of any outstanding Member Loans (together with interest thereon), the ZIG Member, as Manager, shall not take any of the actions or make any of the decisions, or cause or consent to any Subsidiary taking any such action or making such decision, set forth on Exhibit B hereto (each a “Fundamental Decision”) except with the prior written consent of the Medigus Member.
3.5 Management Fee. Commencing upon Completion of Phase I Renovation Work, the Company shall pay to the Manager an annual asset management fee (the “Management Fee”) equal to eight and 3/100 percent (8.3%) of the annual gross revenue of the Property. The Management Fee shall be paid by the Company quarterly, within fifteen (15) days following the end of each calendar quarter, based on the actual gross revenue for such calendar quarter. Any additional compensation to the Manager shall be in the discretion of the Members, and determined by Unanimous Consent of the Members.
3.6 Removal of the ZIG Member as Manager for Cause.
(a) Until such time that the Medigus Member has received a return of one hundred percent (100%) of its Initial Capital Contributions and has been fully repaid for any outstanding Member Loans (together with interest thereon), the Medigus Member may elect, by delivery to the ZIG Member of written notice (a “Removal Notice”) to remove the ZIG Member as Manager upon the occurrence of one or more of the following events (each a “Removal Event” and collectively, the “Removal Events”):
(i) Conviction of the ZIG Member and/or the Key Principal of a felony or a crime that involves fraud or misappropriation of funds;
(ii) Material misappropriation of funds of the Company (including tenant security deposits, insurance proceeds and/or condemnation awards) by the ZIG Member and/or the Key Principal; (iii) Fraud, intentional material misrepresentation, knowing material violation of Applicable Law, gross negligence or willful misconduct in connection with the Company and/or the Property by the ZIG Member and/or the Key Principal;
(iv) The occurrence of a Bankruptcy Event with respect to the ZIG Member and/or the Key Principal;
(v) Failure of the Key Principal to satisfy the Key Principal Control Requirement;
(vi) Failure of the Key Principal to satisfy the Key Principal Ownership Requirement;
(vii) Failure of the ZIG Member to pay any Cost Overruns promptly and without causing a delay in the renovation of the Property;
(viii) Failure of the Company to achieve Completion of Phase I Renovation Work within eighteen (18) months of the Effective Date, subject to any actual, unforeseeable and unavoidable delays outside the reasonable control of the Manager (and not contributed to by the gross negligence of the Manager) including, but not limited to, labor disputes, delays in the issuance of municipal approvals, and other “force majeure” events such as windstorms, floods or fires;
(ix) The occurrence of (i) an event of default (after the expiration of any applicable cure period) under any of the Senior Financing Documents or (ii) any event that would have, absent any action taken by the ZIG Member to cure the same, resulted in such a default beyond any applicable notice and/or cure period under any of the Senior Financing Documents, unless such event of default was caused by the Medigus Member or its Affiliates;
(x) Failure of the Company to make a distribution to the Medigus Member as and when required pursuant to Section 5.2;
(xi) The taking or approval by the Company of any Major Decision without the prior written consent of the Medigus Member in breach of Section 3.4(a) hereof;
(xii) The taking or approval by the Company of any Fundamental Decision without the prior written consent of the Medigus Member in breach of Section 3.4(b) hereof; and
(xiii) Failure of the Company to distribute to the Medigus Member sixty percent (60%) of its Initial Capital Contribution on or before the fifth (5th) anniversary of the Effective Date.
(b) Following receipt by the Medigus Member of one hundred percent (100%) of its Initial Capital Contributions and repayment in full of any outstanding Member Loans (together with interest thereon) the Medigus Member may elect, by delivery of a Removal Notice to the ZIG Member, to remove the ZIG Member as Manager only upon the occurrence of one or more of the Removal Events specified in Section 3.6(a) (i), (ii) or (iii).
(c) Following delivery of a Removal Notice pursuant to Section 3.6(a) or Section 3.6(b), the ZIG Member shall be automatically removed as Manager of the Company. Upon such removal, (i) the ZIG Member shall continue to be a Member of the Company; (ii) the Medigus Member (or any entity designated by the Medigus Member) will be appointed as the replacement Manager and will be afforded all of the rights and authority vested in the position of Manager under this Agreement, including full governance and control of the Company, and the replacement Manager shall not make, and not cause or consent to any Subsidiary making any Major or Fundamental Decision except with the prior written consent of the ZIG Member provided that the Medigus Member has received a return of at least One Million Dollars ($ 1,000,000) of its Initial Capital Contribution from the Company, (iii) the Medigus Member shall be permitted to terminate all contracts and agreements between the Company and the ZIG Member and any Affiliate thereof, and (iv) the ZIG Member and/or its Affiliates shall no longer receive the Management Fee. For the avoidance of doubt, the replacement Manager shall owe no fiduciary duties to any Members or their Affiliates (such rights being irrevocably waived by the ZIG Member), provided that such waiver shall in no way derogate from any fiduciary duty owned by the Manager to the Company pursuant to Applicable Law. Following such removal, the Medigus Member, acting alone, shall be permitted to amend the Articles and/or this Agreement to reflect the removal of the ZIG Member as Manager and the appointment of a new Manager and the other matters set forth above. Without limiting the foregoing, the ZIG Member hereby irrevocably constitutes and appoints the Medigus Member attorney-in-fact, coupled with an interest, for the purpose of executing and delivering any amendments to the Articles and/or this Agreement so as to effectuate the provisions set forth herein.
(d) Notwithstanding the foregoing, or anything herein to the contrary, if, upon removal of the ZIG Member as Manager, or at any time thereafter, the Medigus Member has received (or is capable of receiving from available distributions in the account of the Company) a return of one hundred percent (100%) of its Initial Capital Contribution and has been fully repaid for any outstanding Member Loans (together with interest thereon), then provided that the ZIG Member was not removed for any reason described in Section 3.6(a)(i), (ii), or (iii) of this Agreement, the ZIG Member may again select a replacement Manager, provided, however, the replacement Manager, shall not make, and not cause or consent to any Subsidiary making, any Major or Fundamental Decision except with the prior written consent of the others Members. If the ZIG Member, in its capacity as Manager, is removed for any reason described in Section Paragraph 3.6(a)(i), (ii), or (iii) of this Agreement, then the ZIG Member may not resume its duties as Manager upon the return to the Medigus Member of one hundred percent (100%) of its Initial Capital Contribution and any outstanding Member Loans (together with interest thereon). However, in this instance, in the event the ZIG Member has been removed as Manager and still is liable to a lending institution for a guaranty of indebtedness of the Company, the ZIG Member shall be permitted to sell or transfer its Membership Interest pursuant to Article 9.2(c).
3.7 Bank Accounts. Any disbursement from all bank accounts maintained by the Company and its Subsidiaries in excess of One Hundred Thousand and 00/100 Dollars ($ 100,000.00) shall be made exclusively via wire transfer and shall require the prior written authorization of the Medigus Member to the Manager. The Medigus Member shall not be an authorized signatory on the Company’s bank accounts. However, the Manager shall set up online wire transfer access at the bank of the Manager’s choosing and shall configure the wire transfer account to require the electronic approval of both the ZIG Member and the Medigus Member in such system prior to the bank releasing any wire in excess of One Hundred Thousand and 00/100 Dollars ($ 100,000.00).
ARTICLE IV
MEMBERSHIP INTERESTS; CAPITAL CONTRIBUTIONS
4.1 Membership Interests. Each Member shall own membership interests (“Membership Interests”) in the Company which shall entitle the Member to a share in the profits, losses and distributions of the Company. The initial percentage of Membership Interests owned by each Member (the “Percentage Interest”) is set forth in Section 2.1 above.
4.2 Initial Capital Contributions. The initial Capital Contributions (“Initial Capital Contributions”) of the Members are set forth in Section 2.1 above.
4.3 Additional Capital Contributions.
(a) Except for its Initial Capital Contribution and as otherwise expressly provided herein, no Member shall be required to commit or contribute any additional capital to the Company.
(b) Notwithstanding the foregoing, if, (i) either the Manager or the Medigus Member reasonably determines that additional capital contributions to the Company (“Additional Capital Contributions”) are required for the Company or any Subsidiary to fund Necessary Expenses, or (ii) the Members, by Unanimous Consent of the Members, approve the funding of Additional Capital Contributions as a Major Decision, then the Manager may (or shall, if requested by the Medigus Member pursuant to subsection (i) above) request in writing that the Members make Additional Capital Contributions to the Company. If the Manager makes such request, the Members shall contribute such Additional Capital Contributions within ten (10) Business Days after the date of receipt of notice of the request for the Additional Capital Contribution. All Additional Capital Contributions shall be funded thirty percent (30%) by the Medigus Member and seventy percent (70%) by the ZIG Member.
(c) If any Member does not fund its share of an Additional Capital Contributions requested pursuant to Section 4.3(b) above within ten (10) Business Days after the date of receipt of notice of the request (such Member, a “Non-Contributing Member”), then the other Members who have funded their share of the Additional Capital Contribution (each, a “Contributing Member”) may elect to fund its share of all amounts requested to be funded by the Non-Contributing Members as a loan by such Contributing Member or its Affiliate to the Non-Contributing Member (a “Member Loan”). Each Member Loan shall be deemed a loan to the Non-Contributing Member followed by a Capital Contribution in the amount of such Member Loan by the Non-Contributing Member to the Company. Each Member Loan shall bear interest at a rate equal to the lesser of twelve percent (12%) per annum or the maximum rate of interest permitted by Applicable Law. Any distributions otherwise payable to a Non-Contributing Member under this Agreement shall be applied first to the repayment of Member Loans made on its behalf and the Non-Contributing Member shall receive no distributions until such Member Loans owed by it are paid in full together with interest accrued thereon.
4.4 Cost Overruns. Notwithstanding anything herein to the contrary, to the extent that, at any time, the costs for renovation of the Property in accordance with the Renovation Plan exceed the hard and soft costs as set forth in the approved Renovation Budget (“Cost Overruns”), the ZIG Member shall be required to fund all such Cost Overruns in full, promptly and without causing any delay in the renovation of the Property. For the avoidance of doubt, it is agreed that all amounts funded by the ZIG Member pursuant hereto on account of Cost Overruns shall not be deemed Capital Contributions or Member Loans and shall not entitle the ZIG Member to any increase in its Percentage Interest or to receive priority distributions except as set forth in Section 5.2 below. Notwithstanding the foregoing, in the event that the ZIG Member fails, at any time, to fund a Cost Overrun, the Medigus Member may elect, in its sole and absolute discretion, to fund such Cost Overrun as a Member Loan to the ZIG Member.
4.5 Partial Redemption and Issuance. Notwithstanding anything herein to the contrary, the Medigus Member hereby agrees that, upon such time that the Medigus Member has received a distribution (pursuant to Section 5.2(b) hereof) of one hundred percent (100%) of its Initial Capital Contribution and has been fully repaid for any outstanding Member Loans (together with interest thereon), the Manager shall cause the Company to redeem from the Medigus Member, without any further consent or action of the Members, fifty percent (50%) of the Medigus Member’s Membership Interests in the Company, equaling a thirty percent (30%) Percentage Interest in the Company (the “Redeemed Membership Interests”) and to, thereafter, issue to the ZIG Member, additional Membership Interests in the Company equaling a thirty percent (30%) Percentage Interest in the Company. Following such redemption and issuance, the ZIG Member will hold a seventy percent (70%) Percentage Interest in the Company and the Medigus Member will hold a thirty percent (30%) Percentage Interest in the Company. Notwithstanding the foregoing, the Medigus Member agrees, upon such redemption, to execute an assignment in favor of the Company of the Redeemed Membership Interests and to do and take such other actions as are reasonably necessary to effectuate such redemption.
4.6 Record of Capital Contributions/Percentage Interests. This Agreement, any amendment(s) to this Agreement, and all resolutions of the Members shall constitute the record of the Members, their Capital Contributions and their respective Percentage Interests in the Company.
ARTICLE V
ALLOCATION OF PROFITS AND LOSSES; DISTRIBUTIONS
5.1 Allocation of Profits and Losses. The profits and losses and all other tax attributes of the Company shall be allocated among the Members on the basis of the Members’ Percentage Interests in the Company.
5.2 Distributions. Commencing upon Completion of Phase I Renovation Work, the Manager shall distribute Net Cash from Operations, with respect to each calendar quarter, during the next succeeding calendar quarter, or more frequently as determined by the Manager. The Manager shall distribute Net Cash from Capital Transactions, if any, as soon as reasonably practicable. All distributions of Net Cash from Operations and Net Cash from Capital Transactions shall be made as follows:
(a) First, one hundred percent (100%) to repay all debts, regular operating expenses of the Company and obligations of the Company, including the then current periodic installments of principal and interest due on the Senior Financing; (b) Second, one hundred percent (100%) to the Medigus Member until the Medigus Member has received a return of one hundred percent (100%) of its Initial Capital Contribution;
(c) Third, one hundred percent (100%) to the ZIG Member to repay all Cost Overruns incurred by the ZIG Member, if any, up to the maximum amount of One Hundred Eighty Thousand and 00/100 Dollars ($180,000.00); and
(d) Thereafter, pro rata to the Members in accordance with their Percentage Interests.
For the avoidance of doubt, when any Member Loan is outstanding, all distributions that would otherwise be made to a Non-Contributing Member that received a Member Loan, shall instead be distributed to the Contributing Member(s) that extended such Member Loan to pay, in the following order of priority, all unpaid but accrued interest on the Member Loan, and then the unpaid principal of such Member Loan. Any amounts paid to the Contributing Member(s) that extended a Member Loan shall be deemed to constitute distributions to the Non-Contributing Member for all purposes of this Agreement.
5.3 Change in Percentage Interests. If during any fiscal year there is a change in a Member’s Percentage Interest, the Member’s share of profits and losses and distributions in such year shall be determined under a method which takes into account the varying interests during such year.
ARTICLE VI
VOTING; MEETINGS
6.1 Voting. The Members shall be entitled to vote on all matters which provide for a vote of the Members, in accordance with each Member’s Percentage Interest.
6.2 Action by Meeting; Written Consent. Action of the Members may be accomplished with or without a meeting. If a meeting is held, evidence of the action shall be by Minutes of Resolution reflecting the action of the meeting, signed by all of the Members. Action without a meeting may be evidenced by a written consent of the members whose consent is required to approve such action.
6.3 Meetings. Meetings of the Members may be called by the Manager or by any Member owning ten percent (10%) of more of the Percentage Interests.
ARTICLE VII
LIMITATION OF LIABILITY; INDEMNIFICATION
7.1 Limitation of Liability. No Member shall be liable to the Company or any other Member for any loss, damage, or claim incurred by reason of any action taken or omitted to be taken by such Member so long as such action or omission does not constitute fraud, gross negligence, or willful misconduct or a material breach of this Agreement or breach of its fiduciary duties under this Agreement or Applicable Law. Without limiting anything herein, the Members shall, from time to time, have the right to form advisory committees. For the avoidance of doubt, all Persons serving on an advisory committee shall be deemed a Protected Party for purposes hereof.
7.2 Members Have No Exclusive Duty to the Company. The Members shall not be required to participate in the Company as their sole and exclusive business. Members may have other business interests and may participate in other investments or activities in addition to those relating to the Company. Neither the Company nor any other Member shall have any right, by virtue of this Agreement, to share or participate in another Member’s business interests, investments or activities or the income of proceeds derived therefrom. No Member shall incur liability to the Company or to any other Member by reason of participating in any such other business, investment or activity.
7.3 Protection of Protected Parties.
(a) To the extent that, at law or in equity, a Protected Party has duties and liabilities relating to the Company or to any other Protected Party, a Protected Party acting under this Agreement shall not be liable to the Company or to any other Protected Party for good faith reliance on: (i) the provisions of this Agreement; (ii) the records of the Company; and/or (iii) such information, opinions, reports or statements presented to the Company by any Person as to matters the Protected Party reasonably believes are within such other Person’s professional or expert competence and who has been selected with reasonable care by or on behalf of the Company, including information, opinions, reports or statements as to the value and amount of the assets, liabilities, profits or losses of the Company or any other fact pertinent to the existence and amount of assets from which distributions to Members might property be paid.
(b) The provisions of this Agreement, to the extent that they restrict the duties and liabilities of a Protected Party to the Company or to any other Protected Party otherwise existing at law or in equity, are agreed by the parties hereto to replace such other duties and liabilities of such Protected Party to the maximum extent permitted by any Applicable Law.
(c) Whenever this Agreement permits or requires a Protected Party to make a decision in its “discretion” or under a grant of similar authority or latitude, the Protected Party shall be entitled to consider only such interests and factors as it desires, including its own interests, and shall have no duty or obligation to give any consideration to any interest of or factors affecting the Company or any other Person.
(d) Whenever this Agreement permits or requires a Protected Party to make a decision using a “good faith” or under another express standard, the Protected Party shall act under such express standard and shall not be subject to any other or different standard imposed by this Agreement or other Applicable Law.
7.4 Indemnification.
(a) To the fullest extent permitted by the Act, as the same now exists or may hereafter be amended, substituted, or replaced (but, in the case of any such amendment, substitution, or replacement only to the extent that such amendment, substitution, or replacement permits the Company to provide broader indemnification rights than the Act permitted the Company to provide prior to such amendment, substitution, or replacement), the Company shall indemnify, hold harmless, defend, pay, and reimburse any Protected Party from and against any and all losses, claims, damages, judgments, fines, or liabilities, including reasonable legal fees or other expenses incurred in investigating or defending against such losses, claims, damages, judgments, fines, or liabilities, and any amounts expended in settlement of any claims (collectively, “Losses”) to which such Protected Party may become subject by reason of: (i) any act or omission or alleged act or omission performed or omitted to be performed on behalf of the Company in connection with the business of the Company; or (ii) the fact that such Protected Party is or was acting in connection with the business of the Company as a manager, officer, employee, or agent of the Company or that such Protected Party is or was serving at the request of the Company as a manager, director, officer, employee, or agent of any other Person; provided, that (x) such Protected Party acted in good faith and in a manner believed by such Protected Party to be in, or not opposed to, the best interests of the Company and (y) such Protected Party’s conduct did not constitute fraud, gross negligence, or willful misconduct.
(b) Expenses (including attorney’s fees) incurred by a Protected Party in defending any proceeding shall be paid in advance of the proceeding’s final disposition. Should the Protected Party ultimately be determined to not be entitled to indemnification, that member or officer agrees to immediately repay to the Company all funds expended by the Company on behalf of the Protected Party.
(c) The right to indemnification and the advancement of expenses conferred in this Section shall not be exclusive of any right which any Person may have or hereafter acquire under any statute, provision of this Agreement, contract, agreement, vote of Members or otherwise. The Members and officers are expressly authorized to adopt and enter into indemnification Agreements for Protected Parties.
(d) The Members may cause the Company to purchase and maintain insurance for the Company, for its Members and officers, and/or on behalf of any third party or parties whom the Members might determine should be entitled to such insurance coverage.
(e) No amendment, repeal or modification of this Section shall adversely affect any rights hereunder with respect to any action or omission occurring prior to the date when such amendment, repeal or modification became effective.
7.5 Survival. The provisions of this Article VII shall survive the dissolution, liquidation, winding up and termination of the Company.
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES
8.1 By the Members. By execution and delivery of this Agreement, each Member, whether admitted as of the Effective Date or hereafter, represents and warrants to the Company and to the other Members, and acknowledges that, with respect to such Member:
(a) The execution, delivery, and performance of this Agreement, have been duly authorized by such Member and does not require such Member to obtain any consent or approval that has not been obtained and does not contravene or result in a default in any material respect under any provision of any law or regulation applicable to such Member or other governing documents or any agreement or instrument to which such Member is a party or by which such Member is bound; (b) This Agreement is valid, binding, and enforceable against such Member in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium, and other similar laws of general applicability relating to or affecting creditors’ rights or general equity principles (regardless of whether considered at law or in equity);
(c) The execution, delivery and performance by such Member of this Agreement and such Member’s obligations hereunder have been duly authorized by all necessary limited liability company, corporate or limited partnership action, as applicable, and does not (i) contravene such Member’s organizational documents, (ii) violate any Applicable Law applicable to such Member, (iii) conflict with or result in or constitute a default or an event that, with notice or lapse of time or both, would be a default, breach or violation under, any license, permit, contract, loan agreement, indenture, mortgage, deed of trust, lease or other instrument binding on or affecting such Member that would materially impair their ability to perform its obligations under this Agreement or would materially impair the operation of the Property, or (iv) result in the acceleration of any indebtedness of such Member;
(d) Such Member is duly organized and validly existing and in good standing under the laws of its respective incorporation and is duly authorized and qualified to do all things required of it under this Agreement; and
(e) Such Member has not make a general assignment for the benefit of creditors, filed any voluntary petition in bankruptcy or suffered the filing of an involuntary petition by its creditors, suffered the appointment of a receiver to take possession of substantially all of its assets, suffered the attachment or other judicial seizure of substantially all of its assets, admitted its inability to pay its debts as they come due, or made an offer of settlement, extension or composition to its creditors generally.
8.2 By the ZIG Member. The ZIG Member represents and warrants to the other Members, as of the Effective Date, as follows:
(a) The Key Principal Control Requirement is satisfied;
(b) The Key Principal Ownership Requirement is satisfied;
(c) The Company owns one hundred percent (100%) of the fee simple interest in the Property, subject only to Permitted Liens;
(d) Except for Permitted Liens, no Liens exist with respect to the Property;
(e) No event or condition has occurred or is occurring with respect to the Property relating to any Environmental Law, any Environmental Claim, or any Hazardous Materials Activity that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect; and
(f) The current condition, use, occupation and operation of the Property and the planned renovation thereof in accordance with the Renovation Plan complies with Applicable Laws.
ARTICLE IX
TRANSFERS OF INTEREST; FORCED SALE
9.1 General Restrictions on Transfers. Each Member acknowledges and agrees that such Member shall not sell, assign, transfer, encumber, grant a security interest in, exchange or otherwise dispose of (“Transfer”) all or any part of its Membership Interests except as permitted pursuant to Section 9.2 below or otherwise with Unanimous Consent of the Members. Any Transfer in violation of this Article shall be invalid, ineffective and not enforceable for any purpose.
9.2 Permitted Transfers. For purposes hereof, a “Permitted Transfer” shall mean:
(a) A Transfer of all or part of a Member’s Membership Interests to an entity that is an Affiliate of such Member, provided, however, that, with respect to the ZIG Member, following such Transfer, both the Key Principal Control Requirement and the Key Principal Ownership Requirement are satisfied;
(b) A Transfer by the Medigus Member to a third party transferee subject to the terms of Section 9.3 below.
(c) Following removal of the ZIG Member pursuant to Section 3.6(b) and subject to lender consent, a Transfer by the ZIG Member to a third party transferee subject to the terms of Section 9.3 below.
9.3 Right of First Offer.
(a) If at any time the Medigus Member or the ZIG Member desires to Transfer all or part of its Membership Interests (the “Offered Interest”) per Section 9.2(b) or (c) above, then in such case, such Member (the “Transferring Member”) shall provide written notice (a “Transfer Notice”) to the ZIG Member or the Medigus Member, as applicable (the “Offeree Member”) specifying the purchase price for which the Transferring Member wishes to offer its Membership Interests for sale (the “Offered Purchase Price”). Upon receipt of a Transfer Notice, Offeree Member shall have a period of fourteen (14) Business Days to elect (by written notice to the Transferring Member) to purchase all or part of the Offered Interest at the Offered Purchase Price. If the Offeree Member elects to purchase all or part of the Offered Interest at the Offered Purchase Price, the closing on the sale shall occur within sixty (60) days from the date that the Transferring Member gives written notice to the Offeree Member. The Offered Purchase Price shall be paid in cash at closing by the Offeree Member to the Transferring Member.
(b) In the event that the Offeree Members does not elect to purchase the entire Offered Interest, the Transferring Member may Transfer the Offered Interest or remaining portion thereof to any third party transferee within ninety (90) days of the Transfer Notice, for a purchase price which shall not be less than ninety percent (90%) of the Offered Purchase Price. Notwithstanding the foregoing, in the event, within such ninety (90) day period, the Transferring Member receives an offer to purchase the Property for any amount less than the Offered Purchase Price but equal to or greater than ninety percent (90%) of the Offered Purchase Price, and desires to accept such offer, then, in such event, the Transferring Member shall provide written notice to the Offeree Member (an “Updated Transfer Notice”), specifying the price for which the Transferring Member wishes to sell its Membership Interests (the “Adjusted Purchase Price”), following which the Offeree Member shall have a period of fourteen (14) days to elect (by written notice to the Transferring Member) to elect to purchase all or part of the Offered Interest at the Adjusted Purchase Price.
(c) If the Offeree Member elects to purchase all or part of the Offered Interest at the Offered Purchase Price or Adjusted Purchase Price, as applicable, the closing on the sale shall occur within sixty (60) days from the date the Transfer Notice or Updated Transfer Notice, as applicable. The Offered Purchase Price or Adjusted Purchase Price, as applicable, shall be paid in cash at closing by the Offeree Member to the Transferring Member.
(d) In the event that the closing of the Transfer is not effectuated on or before such date that is one hundred and eighty (180) days from the Transfer Notice or Updated Transfer Notice, as applicable, in the event the Transferring Member wishes to Transfer all or part of its Membership Interests to a third party transferee, the Transferring Member must again provide a Transfer Notice to the Company in accordance with this Section 9.3 and the procedure set forth herein shall commence again.
9.4 Forced Sale.
(a) From and after the earlier of (i) a Removal Event or (ii) the fifth (5th) anniversary of the Effective Date, the Medigus Member may, without the prior consent of any other Member, elect to initiate a sale of the Property by the Company in accordance with this Section 9.4.
(b) To initiate a sale of the Property pursuant to this Section 9.4, the Medigus Member shall provide written notice (the “Forced Sale Notice”) to the Manager, with a copy to the other Members, stating the Medigus Member’s desire to cause a sale of the Property and setting forth the proposed sale price (which shall be sufficient to repay the Senior Financing) and other terms of sale (the “Proposed Sale Terms”).
(c) Upon receipt of the Forced Sale Notice, the other Members will have a period of fourteen (14) Business Days to elect to purchase the Property for the Proposed Sale Terms. If the other Members elect to purchase the Property, (i) the other Members shall, within such fourteen (14) Business Day period, provide written notice thereof to the Manager (with a copy to the Medigus Member) and deposit by cash (or by certified check or wire transfer of immediately available funds) to an escrow account with a nationally recognized title insurance company acceptable to the Medigus Member, an aggregate amount equal to five percent (5%) of the proposed sale price specified in Proposed Sale Terms, and (ii) the closing of such sale shall occur within sixty (60) days from the date that the other Members provide written notice of their election to purchase the Property. If the closing fails to occur by reason of a default by the other Members, the Medigus Member shall be entitled to payment of the deposit as liquidated damages and the other Members shall have no further rights to purchase the Property under this subsection (c).
(d) If the other Members do not elect to purchase the Property, or the closing fails to occur by reason of a default by the other Members as provided in subsection (c) above, the Manager shall retain one of the six (6) largest nationally recognized brokerage firms selected by Medigus Member to market the Property for sale on the Proposed Sale Terms, and shall cause the Property to be marketed and sold for a purchase price at or above the purchase price specified in the Proposed Sale Terms and upon such other terms acceptable to the Medigus Member.
(e) The Manager shall comply with all reasonable instructions of the Medigus Member in connection with the sale of the Property and the Manager and the Members shall reasonably cooperate and execute and deliver on behalf of the Company (as applicable) such agreements, documents, instruments and applications, including a purchase and sale agreement, deed, assignment of leases, bill of sale and other conveyance documents conveying the Property as directed by the Medigus Member in order to consummate the sale (collectively, the “Sale Documents”).
ARTICLE X
DISSOLUTION
10.1 Dissolution. The Company shall be dissolved, and its affairs shall be wound up upon the occurrence of one or more of the following events: (a) Unanimous Consent of the Members; or (b) any other event that requires the Company’s dissolution under the Act.
10.2 Effect of Dissolution. Upon an event of dissolution, the Company shall cease to carry on its business, except insofar as may be necessary for the Manager to wind up of its business and its separate existence shall continue until such activities have been completed. On winding up of the Company, the assets of the Company shall be distributed, first to creditors of the Company in satisfaction of the liabilities of the Company, and then to the Members pro rata in accordance with Section 5.2. Upon the completion of the liquidation the Company shall terminate and the Manager shall have the authority to execute articles of dissolution in such form as shall be prescribed by the Act and file the same with the Florida Secretary of State.
ARTICLE XI
TAX MATTERS
11.1 Capital Accounts. Capital accounts for each Member (each, a “Capital Account”) shall be maintained consistent with U.S. Internal Revenue Code § 704 and the regulations thereunder.
11.2 Tax Matters Partner. The Members hereby designate the Manager as the “tax matters partner” for purposes of representing the Company before the Internal Revenue Service, if necessary.
11.3 Partnership Election. The Members intend that the Company shall be taxed as a partnership for federal and state tax purposes, and not as an association taxable as a corporation.
Any provision of this Agreement that may cause the Company not to be taxed as a partnership shall be inoperative.
11.4 Section 754 Election. The Manager shall cause the Company to file an election under U.S. Internal Revenue Code § 754 to provide for an adjustment to the basis of Company assets if requested to by a Member in connection with the disposition of an interest in the Company by that Member.
11.5 Withholding Notification. The Company shall provide the Member with notification of any anticipated withholding requirements with as much advance notice as practicable and shall cooperate in good faith with the Member to minimize such withholding taxes.
ARTICLE XII
BOOKS AND RECORDS; REPORTING
12.1 Records and Inspection. The Company shall maintain at its principal place of business the Articles, any amendments thereto, this Agreement, and all other records, books and accounts required to be kept by the Act, and the same shall be subject to inspection and copying at the reasonable request of any Member.
12.2 Reports. In connection with the management and operation of the Company the Manager shall furnish to each Member, via electronic mail, the following reports and information, and such other reports as the Members shall, from time to time request (but not more frequently than quarterly):
(a) As soon as available, and in any event within one hundred twenty (120) days after the end of each fiscal year, (i) unaudited consolidated balance sheets of the Company prepared and reviewed by the Company’s certified public accountant as of the end of each such fiscal year and unaudited consolidated statements of income, cash flows, and Members’ equity for such fiscal year, in each case, that fairly present in all material respects the financial condition of the Company as of the dates thereof and the results of their operations and changes in their cash flows and Members’ equity for the periods covered thereby; (ii) copies of the tax returns for the Company and (iii) form K-1’s for each Member.
(b) As soon as available, and in any event within forty-five (45) days after the end of each quarterly accounting period in each fiscal year (other than the last fiscal quarter of the fiscal year), unaudited consolidated balance sheets of the Company prepared and reviewed by the Company’s certified public accountant as of the end of each such fiscal quarter and for the current fiscal year to date and unaudited consolidated statements of income, cash flows, and Members’ equity for such fiscal quarter and for the current fiscal year to date, all in reasonable detail and all prepared in accordance with the Company’s normal accounting practices, consistently applied (subject to normal year-end audit adjustments and the absence of notes thereto).
(c) Commencing upon Commencement of Phase I Renovation Work, as soon as available, and in any event within thirty (30) days after the end of each month, a project management report for the prior month, including progress reports on any construction, demolition, grading, and improvement work on the Property as contemplated in the Renovation Plan.
(d) Promptly upon Manager’s receipt or sending thereof, copies of all material notices, reports and communications between the Company and any Governmental Authorities, neighboring property owners, community groups and other relevant third parties, or holder of the Seller Loan or other Senior Financing, including, without limitation, notices of litigation, and mechanics lien filings or actions.
ARTICLE XIII
MISCELLANEOUS PROVISIONS
13.1 Confidentiality. Each Member shall, and shall cause each of his, her, or its Affiliates to, maintain, at all times (including after any time that such Member ceases to be a Member), the confidentiality of all information furnished to him, her, or it pertaining to the Company, including the terms of this Agreement (“Confidential Information”) without the consent of the other Members, other than information that such Member can demonstrate (a) is or becomes generally available to the public other than as a result of a disclosure by such Member or his, her, or its Affiliates; (b) becomes available to such Member or any of his, her, or its Representatives on a non-confidential basis from a third party who is not known by such Member to be prohibited by any obligation of confidentiality owed to the Company from transmitting the information to such Member; or (c) was already in the possession of such Member prior to his, her, or its becoming a Member; provided, however, that the prohibitions set forth in this Section 13.1 shall not prohibit disclosure of Confidential Information (i) to Representatives and current or prospective investors in such Member or his, her, or its Affiliates who, in the reasonable judgment of such Member, have a need to know such information and who are subject to substantially similar confidentiality obligations; (ii) to the extent necessary in the course of performing such Member’s obligations or enforcing any remedy under this Agreement; or (iii) as is required to be disclosed by a court of competent jurisdiction, administrative body, securities or other regulatory agency or Governmental Authority or by subpoena, summons, or legal process, or by Applicable Law (whether in the US or Israel); provided that, to the extent permitted by Applicable Law, the Member required to make such disclosure shall provide to the Manager prompt notice of such disclosure.
13.2 Entire Agreement. This Agreement, together with all Exhibits and Schedules, constitutes the entire agreement among the Member pertaining to the subject matter hereof. This Agreement supersedes any prior agreement or understanding among the Members with respect to its subject matter, but shall not amend, modify, supersede or in any way affect any other agreement or understanding among the Members or their Affiliates that do not relate to the subject matter of this Agreement.
13.3 Successors and Assigns. Subject to the restrictions on Transfers set forth herein, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, executors, administrators, successors, and permitted assigns. This Agreement may not be assigned by any Member except as permitted by this Agreement and any assignment in violation of this Agreement shall be null and void.
13.4 No Third Party Beneficiaries. Except as provided in Article VII which shall be for the benefit of and enforceable by Protected Parties as described therein, this Agreement is for the sole benefit of the parties hereto (and their respective heirs, executors, administrators, successors, and permitted assigns) and nothing herein, express or implied, is intended to or shall confer upon any other Person (including any creditor of the Company, any equity owner of a Member, or any lender of a Member), or any legal or equitable right, benefit, or remedy of any nature whatsoever under or by reason of this Agreement.
13.5 Amendment; No Waiver. Except as otherwise provided in this Agreement, any amendment to this Agreement may be proposed by a Member. Unless waived by the Members, the proposing Member shall submit to the Members any such proposed amendment together with an opinion of counsel as to the legality of such amendment and the recommendation of the Member as to its adoption. A proposed amendment shall become effective at such time as it has been approved in writing by Unanimous Consent of the Members. This Agreement may be not amended nor may any rights hereunder by waived except by an instrument in writing signed by the party sought to be charged with such amendment or waiver, except as otherwise provided in this Agreement.
13.6 Intentionally Deleted.
13.7 Applicable Law. To the extent permitted by law, this Agreement shall be construed in accordance with and governed by the laws of the State of Florida, without regard to its principles of conflicts of laws.
13.8 Jurisdiction. Each party hereby irrevocably (a) submits to the exclusive jurisdiction of state courts in Miami-Dade County, Florida in any action or proceeding arising out of or relating to this Agreement, the relations between the parties and any matter, action or transaction described in this Agreement, (b) agrees that any such courts shall have exclusive jurisdiction over such actions or proceedings, (c) waives the defense of inconvenient forum to the maintenance and continuation of such action or proceeding, (d) consents to the service of any and all process in any such action or proceeding by the mailing of copies (certified mail, return receipt requested and postage prepaid) of such process to them and (e) agrees that a final and non-appealable judgment rendered by a court of competent jurisdiction in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.
13.9 Pre-Suit Mediation Required. Prior to any Member instituting legal action against the Company or another Member in a court of competent jurisdiction, the Members agree to submit all disputes to mediation for a period of time up to sixty (60) days to attempt to resolve such disputes. The cost of the mediation shall be shared evenly by the parties to the dispute. If the parties cannot agree on the mediator, then the parties submit to the appointment of a neutral mediator as selected by the American Arbitration Association.
13.10 WAIVER OF JURY TRIAL. EACH MEMBER, FOR ITSELF AND ON BEHALF OF ITS AFFILIATES, HEREBY WAIVES ITS RIGHT TO TRIAL BY JURY IN ANY
ACTION, LAWSUIT OR PROCEEDING RELATING TO ANY DISPUTE ARISING UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY TRANSACTION DESCRIBED IN THIS AGREEMENT OR DISPUTE BETWEEN THE MEMBERS (INCLUDING DISPUTES WHICH ALSO INVOLVE OTHER PERSONS).
13.11 Severability. If any provision of this Agreement or the application of such provision to any Member or circumstance shall be held invalid or unenforceable, the remainder of this Agreement shall not be affected thereby.
13.12 Cumulative Remedies. Except to the extent expressly stated in this Agreement, (a) no remedy conferred upon any Member pursuant to this Agreement is intended to be exclusive of any other remedy available under this Agreement or Applicable Law and (b) each remedy shall be cumulative and shall be in addition to every other remedy available under this Agreement or Applicable Law now or in the future.
13.13 Pronouns, Etc. References to a Member or Manager, including by use of a pronoun shall be deemed to include masculine, feminine, singular, plural, individuals, partnerships or corporations where applicable.
13.14 Counterparts. This instrument may be executed in any number of counterparts each of which shall be considered an original.
13.15 Specific Performance. Each Member agrees with the other Members that the other Members would be irreparably damaged if any of the provisions of this Agreement are not performed in accordance with their specific terms and that monetary damages would not provide an adequate remedy to which the non-breaching Members may be entitled, at law or in equity, the non-breaching Members shall be entitled to injunctive relief to prevent breaches of this Agreement and, specifically, to enforce the terms and provisions of this Agreement in any action instituted in any court of the United States or any state thereof having subject matter jurisdiction thereof.
13.16 Further Action. Each Member, upon the request of the Company, agrees to perform all further acts and to execute, acknowledge and deliver any documents which may be necessary, appropriate or desirable to carry out the provisions of this Agreement.
13.17 Notices. All notices required or permitted by this Agreement shall be in writing and shall be delivered personally or sent by registered or certified mail, postage prepaid, addressed to the Company at its place of business or to a Member to the address set forth on the signature page hereto (or to such other address as shall be notified by a Member from time to time pursuant to this Section 13.17), and, shall be deemed to have been duly given (i) upon receipt, if delivered personally, or (ii) on the date receipt is acknowledged, if delivered by registered or certified mail. In addition, any notice required or permitted by this Agreement may be given or sent to a Member by electronic mail, provided that such Member has authorized receipt of electronic notices in writing, and further provided that such notice shall be deemed received only upon written or email confirmation or acknowledgement of receipt by the recipient.
13.18 Copies. For purposes of this Agreement, any copy, PDF, telecommunication or other reliable reproduction of a writing, transmission or signature may be substituted or used in lieu of the original writing, transmission or signature for any and all purposes for which the original writing, transmission or signature could be used, provided that such copy, PDF, telecommunication or other reproduction shall have been confirmed received by the sending party.
13.19 Computation of Time. In computing any period of time under this Agreement, the day of the act, event or default from which the designated period of time begins to run shall not be included. The last day of the period so computed shall be included, unless it is a Saturday, Sunday or legal holiday, in which event the period shall run until the end of the next day which is not a Saturday, Sunday or legal holiday.
[Signature Page to Follow]
NOW THEREFORE, for good and valuable consideration, the parties hereto have executed this Agreement on the date set forth above.
NOTICE: EACH MEMBER HEREBY CERTIFIES THAT IT HAS RECEIVED A COPY OF THIS AGREEMENT AND THE ARTICLES OF ORGANIZATION OF THE COMPANY. EACH MEMBER REALIZES THAT AN INVESTMENT IN THIS COMPANY IS SPECULATIVE AND INVOLVES SUBSTANTIAL RISK. EACH MEMBER IS AWARE AND CONSENTS TO THE FACT THAT THE INTERESTS IN THE COMPANY HAVE NOT BEEN REGISTERED UNDER THE US SECURITIES ACT OF 1933 OR SECURITIES ACT OF THE STATE OF FLORIDA. EACH MEMBER AGREES TO BE BOUND BY ALL OF THE TERMS AND CONDITIONS OF THIS AGREEMENT AND THE FORMATION CERTIFICATE OR ARTICLES.
| MEMBERS: | ||
| ZIG INVESTMENT GROUP, LLC | ||
| By: | /s/ Mike Zikri | |
| Name: | Mike Zikri | |
| Title: | Authorized Member | |
| MEDIGUS LTD. | ||||
| By: | /s/ Eli Yoresh | By: | /s/ Liron Carmel | |
| Name: | Eli Yoresh | Name: | Liron Carmel | |
| Title: | Chairman | Title: | CEO | |
Exhibit 4.17
LOAN AGREEMENT
This Loan Agreement (“Loan Agreement”) is made effective as of November 15, 2023, by and among Viewbix Ltd., a company organized under the laws of the State of Israel (the “Company”), and the lenders set forth in Schedule I hereto (each, a “Lender”, and collectively, the “Lenders”).
NOW, THEREFORE, in consideration of the promises and mutual covenants hereinafter contained, the parties hereto agree as follows:
| 1. | Amount of the Loan. The Lenders hereby undertake to provide to the Company loans, in the amounts set forth opposite each Lender’s name in Schedule I hereto, in one or more transactions, in the aggregate amount of US$480,000 (four hundred eighty thousand), and the Lenders may, in the aggregate and at such Lender’s sole discretion, elect to lend an additional amount of up to US$520,000 (five hundred twenty thousand) thereby resulting in an aggregate of up to $1,000,000 (one million). The principal amount of the loan shall be referred to as the “Loan Principal” and the date of each disbursement of the Loan Principal shall be referred to as the “Date of Grant”. |
| 2. | Interest. The Loan Principal shall bear an annual interest of 9% accruing from the Date of Grant through the date of the repayment in full of the Loan Principal (the “Interest”, and the Loan Principal together with any accrued and unpaid interest, the “Loan Amount”). |
| 3. | Loan Repayment. The Loan Amount shall be repaid over the course of two (2) years following January 1, 2024 (the “Repayment Period”), whereby for the first twelve (12) months following January 1, 2024, the Company shall repay on a quarterly basis the Interest accrued on the Loan Principal as of such repayment date (for the avoidance of any doubt, the Company shall not repay any of the Loan Principal during the first twelve (12) months following January 1, 2024), and for the remaining twelve (12) months, the Company shall repay on a quarterly basis the outstanding Loan Amount, as illustrated in the loan amortization schedule attached hereto as Schedule II. For the avoidance of doubt, each Lender may at its discretion offset any portion of the outstanding Loan Amount owed by the Borrower, as of such repayment date set forth in the foregoing repayment schedule, towards the payment of the exercise price for the shares of Common Stock underlying the Warrants, as set forth and defined in Section 4 below. |
| 3.1. | Notwithstanding anything to the contrary, the Company may elect to repay a part or all of the Loan Amount earlier than contemplated in Section 3, with no penalty, premium or other fee or payment. | |
| 3.2. | Notwithstanding anything to the contrary, in the event that the Company fails to repay a part or all of the Loan Amount (due to insufficient cash amount - as determined by the Company's board of directors in good faith based on the Company’s latest consolidated balance sheet, statements of income and statements of cash flow) following the lapse of the Repayment Period, each Lender shall be entitled, at its discretion, to convert the outstanding Loan Amount owed to each respective Lender into shares of the Company’s common stock, par value $0.0001 per share (“Common Stock”), at a price per share equal to the 30-day average of the closing bid price of the Common Stock on such exchange or quotation system upon which the Common Stock is listed or quoted, as applicable, calculated as of such date the respective portion of the outstanding Loan Amount becomes repayable (the “Converted Stock”). The Lenders shall be entitled to the foregoing conversion right for a period of twelve (12) months following the lapse of the Repayment Period, and upon the earlier of the lapse of such period, or upon issuance of the Converted Stock, the Company shall be relieved of any obligations under this Loan Agreement, including the obligation to repay the Loan Amount to the respective Lender. | |
| 4. | Warrants. For every dollar amount of the Loan Principal granted by each Lender under this Agreement, such Lender shall be granted a warrant to purchase up to one share of Common Stock (the “Warrants”) for each one dollar such Lender lends to the Company. The terms of the Warrants, including, without limitation, the exercise period and price, shall be as set forth in the form of Warrants, all subject to the approval of Viewbix Inc. (the “Parent”) . Each Lender undertakes to take all actions and to sign all documents required, at the discretion of the Company and the Parent, in order to give effect to and enforce the above terms and conditions. Any tax liability in connection with the Warrants shall be borne solely by each Lender. |
| 5. | Restrictions on Common Stock. The Lenders understand that the Converted Stock, the Warrants and upon exercise, the shares of Common Stock underlying the Warrants shall be, “restricted securities” within the meaning of Rule 144 under the U.S. Securities Act of 1933, as amended (the “Securities Act”) and may not be sold, pledged, assigned or transferred and must be held indefinitely in the absence of (i) an effective registration statement under the Securities Act and applicable state securities laws with respect thereto, or (ii) an opinion of counsel satisfactory to the Company that such registration is not required. The certificates for each of the shares of Converted Stock, Warrants and underlying shares of Common Stock shall bear the following or similar legend (in addition to such other restrictive legends as are required or deemed advisable under any applicable law or any other agreement to which the Company is a party): |
“THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR UNDER THE SECURITIES LAWS OF ANY STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. UNLESS SOLD PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS.”
The Lenders consent to the Company making a notation on its records or giving instructions to any transfer agent of the Converted Stock, the Warrants and the shares of Common Stock underlying the Warrants in order to implement the restrictions on any such transfer set forth and described herein.
| 6. | Events of Default. Notwithstanding the foregoing, the Loan Amount will immediately become due and payable upon any Event of Default as defined herein. The occurrence of any of the following shall be an “Event of Default”: |
| 6.1. | In the event that the Company breaches the repayment provisions contained in Section 3 above, in which case such breach shall constitute a material breach and Lenders shall each be entitled to terminate this Loan Agreement provided that it first gives the Company written notice of such breach. |
| 6.2. | A receiver, administrator, liquidator, whether temporary or permanent, was appointed to the Company or its business or its property, all or part of it, which appointment was not canceled within 90 days; |
| 6.3. | The Company adopts a resolution for winding up or a winding up order has been issued against it, or a lien has been imposed over its assets or part of them and said lien has not been lifted within 30 days, or ceasing to conduct its business on a permanent basis; or |
| 6.4. | The Company ceases to be an SEC reporting company or fails to timely file any required periodic or annual reports with the SEC. |
| 7. | Accounting Records. The books, accounting records and receipts of each of the Lenders obligate both sides to this Loan Agreement and will be used as conclusive proof against the Company with regard to moneys that the Company owes under this Loan Agreement and/or with regard to other details included in this Loan Agreement. |
| 8. | Miscellaneous. |
| 8.1. | Entire Agreement. This Loan Agreement constitutes and contains the entire agreement of the parties with respect to the subject matter hereof, and supersedes any and all prior agreements regarding the subject matter hereof. |
| 8.2. | Governing Law. This Loan Agreement shall be governed by and construed according to the laws of the State of Israel, without regard to the conflict of laws provisions thereof. Any dispute arising under or in relation to this Loan Agreement shall be resolved in the competent court for Tel Aviv-Jaffa district, and each of the parties hereby submits irrevocably to the jurisdiction of such court. |
| 8.3. | Assignability. Neither the Company nor the Lender shall not have the right to assign its rights hereunder or any interest herein, without the prior written consent of the opposite party. |
| 8.4. | No Waiver; Amendments. This Loan Agreement may not be amended or modified except by written agreement between the Company and each of the Lenders, and no consent or waiver hereunder shall be valid unless in writing and signed by each of the Lenders. The failure of either party to require performance of any provision of this Loan Agreement shall not be construed as a waiver of that party’s rights to insist on performance of that same provision, or any other provision, at some other time. No right may be waived except in a writing signed by the party entitled to assert the right. The waiver by either party of any right created by this Loan Agreement in one or more instances shall not be construed as a further continuing waiver of such right or any other right created by this Loan Agreement. |
| 8.5. | Severability. If any provision of this Loan Agreement is held to be unenforceable for any reason, all other provisions of this Loan Agreement shall be deemed valid and enforceable to the full extent possible. |
| 8.6. | Notices. Any demand notice or communication under this Loan Agreement shall be in writing and shall be hand delivered or sent by registered mail return receipt requested to the party receiving such communication at the address specified herein or such other address as either party may in the future specify to the other party. |
[Signature Page Follows]
IN WITNESS WHEREOF the parties have signed this Loan Agreement as of the date first set forth above.
| VIEWBIX LTD. | ||
| By | /s/ Amihay Hadad | |
| Name: | Amihay Hadad | |
| Title: | CEO | |
| By | /s/ Shahar Marom | |
| Name: | Shahar Marom | |
| Title: | CFO | |
| LENDER: | ||
| MEDIGUS LTD. | ||
| By | /s/ Eli Yoresh | |
| Name: | Eli Yoresh | |
| Title: | Chairman | |
[Signature Page to Loan Agreement, November 15, 2023]
Exhibit 4.18
PRIVATE PLACEMENT AGREEMENT
THIS PRIVATE PLACEMENT AGREEMENT (this “Agreement”) is made as of the [_] day of December 2023, by and between, Gix Internet Ltd., a company organized under the laws of the State of Israel (the “Company”), and MediGus Ltd., a company organized under the laws of the State of Israel (the “Investor” or “Medigus”). The Company and the Investor are referred to collectively as the “Parties” and each as a “Party”.
W I T N E S S E T H:
WHEREAS, the Company is a public company, incorporated under the laws of the State of Israel, whose shares are listed for trading on the Tel Aviv Stock Exchange Ltd. (“TASE”);
WHEREAS, the Investor is a public company, incorporated under the laws of the State of Israel, whose shares are listed for trading on the Nasdaq;
WHEREAS, the Investor holds, beneficially and of record, 17,026,958 ordinary shares of the Company, which shares represent 42.25% of the voting rights of the Company and is familiar with the business and financial condition of the Company;
WHEREAS, the Company has an authorized share capital of 100,000,000 Ordinary Shares with no par value (the “Ordinary Shares”), 40,301,224 of which have been issued and are fully paid; and has issued warrants, employee options and other convertible securities which in the aggregate are convertible or exercisable into 4,485,800 Ordinary Shares;
WHEREAS, the Board of Directors of the Company has determined that it is in the best interests of the Company to raise capital by means of issuance Ordinary Shares to the Investor;
WHEREAS, the Investor desires to purchase and the Company desires to issue and sell to the Investor Ordinary Shares pursuant to the terms and conditions more fully set forth in this Agreement.
NOW, THEREFORE, in consideration for the mutual promises and covenants set forth herein, the Parties hereby agree as follows:
1. Purchase and Sale of Ordinary Shares.
1.1 Sale and Issuance of Shares. Subject to the satisfaction of the closing conditions set forth in Sections 5 and 6 hereof, at the Closing (as defined below), the Company shall issue and sell to the Investor, and the Investor shall purchase from the Company, in consideration for the payment by the Investor of the Purchase Price (as defined below), an aggregate of 2,600,000 Ordinary Shares (the “Purchased Shares”), free and clear from any security interests, liabilities, limitations, pledges, hypothecations, restrictive covenants, claims, restrictions, mortgages, charges pledges and liens whatsoever or any other similar rights or any other third party rights, limitations or restrictions, and rights limitations or restrictions which may impose restrictions on the transfer thereof at any time, other than restrictions imposed by applicable law or stock exchange rules (collectively, “Free and Clear”).
1.2 Purchase Price. The purchase price per each Ordinary Share shall be NIS 0.50 (the “Purchase Price”). The Purchase Price shall be paid by the Investor to the Company at the Closing as follows: (1) an amount of NIS 800,000 shall be paid in cash, by wire transfer of immediately available funds to the Company’s Bank Account (as defined below) (the “Cash Consideration”); and (2) the Investor shall issue to the Company restricted ordinary shares of Medigus, with no per value, in an aggregate amount of NIS 500,000 (“Medigus Shares”). The amount of the Medigus Shares shall be determined based on the average closing price of the ordinary shares of Medigus on the Nasdaq in the 30 days ended one business day prior to Closing.
2. The Closing.
2.1 Closing Date. The consummation of the transactions contemplated hereby, including the purchase and sale of the Purchased Shares and the issuance of the Medigus Shares (the “Closing”), shall take place remotely via the exchange of documents and signatures, on the 3rd TASE trading day after the satisfaction of all of the conditions set forth in Sections 5 and 6 below, other than those conditions that by their nature are to be satisfied at the Closing (but subject to the fulfillment or specific written waiver of those conditions (if permitted hereunder) at the Closing), or at such other time and place as the Company and the Investor mutually agree upon but in any event within fourteen (14) TASE trading days following the approval of the shareholders of the Company of this Agreement in accordance with Section 5.6 below (such designated time and place, the “Closing Date”).
2.2 Transactions at the Closing. At the Closing, the following transactions shall take place, which transactions shall be deemed to take place simultaneously and no transaction shall be deemed to have been completed or any document delivered until all such transactions have been completed and all required documents delivered:
| 2.2.1 | The Company shall deliver to the Investor: |
| 2.2.1.1 | True and correct copies of the resolutions of the Board of Directors (the “Board”), approving the transactions contemplated herein including the issuance of the Purchased Shares; |
| 2.2.1.2 | True and correct copy of minutes of meeting of the Company’s shareholders approving and adopting the execution, delivery and performance by the Company of this Agreement and the transactions contemplated hereby, to the extent required under applicable law; and |
| 2.2.1.3 | An approval from TASE approving the listing and registration for trading of the Purchased Shares on the TASE; |
| 2.2.2 | The Company shall issue the Purchased Shares to the Investor by transferring to the nominee company of the Company (The Tel-Aviv Stock Exchange Nominee Company Ltd.) (the “Nominee Company”) all the documents and information required in order to register the Purchased Shares in the name of the Nominee Company, in favor of the stock exchange member; the Investor hereby instructs the Company to procure that the Purchased Shares shall be credited to his bank account as follows: |
Account Name: Medigus Ltd.
Account Number: 117000/26
Bank: Hapoalim.
Bank Code: 12
Branch: 707
| 2.2.3 | At the Closing, the Investor shall, transfer to the Company the Cash Consideration to be invested at the Closing by wire transfer of immediately available funds according to the Company’s wire instructions set forth below. Failure of the Investor to transfer the Cash Consideration shall entitle the Company, without derogating from any other remedy available to it under applicable law, to immediately terminate the Agreement. Details of Company’s bank account are as follows (“Company’s Bank Account”): |
Account Name: Gix Internet Ltd.
Account Number: 322600/57
Currency: NIS
Bank: Leumi.
Bank Code: 10
Branch: 864
| 2.2.4 | At the Closing, the Investor shall issue and transfer to the Company the Medigus Shares, Free and Clear. Failure of the Investor to issue and transfer the Medigus Shares shall entitle the Company, without derogating from any other remedy available to it under applicable law, to immediately terminate the Agreement. |
3. Representations and Warranties of the Company. The Company hereby represents and warrants to the Investor that the following representations are true, correct and complete as of the date hereof and as of the Closing (as if made on the Closing Date); except, in each case, as to such representations and warranties that address matters as of a particular date, which are true, correct and complete only as of such date:
3.1 Organization. The Company is a company duly organized and validly existing under the laws of the State of Israel, is not a “breaching company” (within the meaning of Section 362.A of the Israeli Companies Law) and has all requisite corporate power and authority to carry on its business as currently conducted.
3.2 Share Capital. The capitalization table of the Company as presented on the website of the Tel-Aviv Stock Exchange (the “Capitalization Table”) represents correctly the outstanding share capital of the Company, as well as all warrants, options or any other securities issued by the Company. Except for: (a) the shares and convertible securities (whether allocated or promised) noted in the Capitalization Table, and (b) transactions contemplated by this Agreement, there are no other outstanding convertible securities, warrants, options or other rights to subscribe for, purchase or acquire from the Company, any share capital of the Company or securities convertible into share capital of the Company and there are no undertakings, commitments (or promises) providing for the issuance of, or the granting of rights to acquire, any share capital of the Company. All the issued and outstanding share capital of the Company has been duly authorized, and is validly issued and outstanding and fully paid and nonassessable. The Purchased Shares, when issued, will be duly authorized, validly issued, fully paid, nonassessable, free of any preemptive rights, will have the rights, preferences, privileges, and restrictions set forth in the articles of association of the Company (the “Articles”), and will be Free and Clear.
3.3 Authorization. All corporate action on the part of the Company necessary for the authorization, execution, delivery, and performance of all of the Company’s obligations under this Agreement including the issuance of the Purchased Shares, has been (or will be) taken prior to the Closing. This Agreement, when executed and delivered by or on behalf of the Company, and assuming the due authorization, execution and delivery by the other parties hereto, constitutes valid and legally binding obligations of the Company, legally enforceable against the Company in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, or other laws of general application relating to or affecting the enforcement of creditors’ rights generally, and (ii) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies.
3.4 No Conflict; Consents. Neither the execution and delivery of this Agreement nor compliance by the Company with the terms and provisions hereof, will conflict with, or result in a breach or violation of, any of the terms, conditions and provisions of: (i) the Articles, (ii) any judgment, order, injunction, decree, or ruling of any applicable court or governmental authority, (iii) any applicable law, or (iv) any agreement, contract, lease, license or commitment to which the Company is a party or to which it is subject; and the execution of this Agreement and the compliance by the Company with its terms and provisions shall not (y) give to others any rights, including rights of termination, cancellation or acceleration, in or with respect to any material agreement, contract or commitment, or to any of the properties of the Company, or (z) otherwise require the consent, authorization or approval of any person any governmental authority, court or third party, which consent or approval has not heretofore been obtained, except for the consents required pursuant to Sections 5.4, 5.5, 5.6, 6.3 and 6.4 of this Agreement, which consents will be obtained prior to the Closing.
3.5 Medigus Shares.
| 3.5.1 | Purchase Entirely for Own Account. The Medigus Shares will be acquired for investment for the Company’s own account and not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and the Company has no present intention of selling, granting any participation in or otherwise distributing the Medigus Shares, except in compliance with applicable securities laws. The Company further represents that it does not have any contract, undertaking, agreement or arrangement with any Person to sell, transfer or grant participation to such Person with respect to the Medigus Shares. For purposes of this Agreement, “Person” means any individual, partnership, corporation, association, joint stock company, trust, joint venture, unincorporated organization or governmental entity (or any department, agency or political subdivision thereof) or other entity. |
| 3.5.2 | The Company (i) can bear the economic risk of its investment and (ii) possesses such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of its investment in the other Party and its securities. |
| 3.5.3 | The Company understands that the sale of the Medigus Shares is not registered under the Securities Act of 1933, as amended (the “Securities Act”) and that the issuance hereof is intended to be exempt from registration under the Securities Act. The certificate or book entry statement representing the Medigus Shares issued shall be endorsed with the following legends, in addition to any other legend required to be placed thereon by applicable securities laws: |
“THIS SECURITY HAS BEEN ACQUIRED FOR INVESTMENT AND HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (“SECURITIES ACT”), OR APPLICABLE STATE
SECURITIES OR “BLUE SKY” LAWS.” “TRANSFER OF THESE SECURITIES IS PROHIBITED UNLESS A REGISTRATION STATEMENT UNDER THE SECURITIES ACT WITH RESPECT TO SUCH SECURITY SHALL THEN BE IN EFFECT AND SUCH TRANSFER HAS BEEN QUALIFIED UNDER ALL APPLICABLE STATE SECURITIES OR “BLUE SKY” LAWS, OR AN EXEMPTION THEREFROM SHALL BE AVAILABLE UNDER THE ACT AND SUCH LAWS.”
| 3.5.4 | The Company acknowledges that neither the U.S. Securities and Exchange Commission, nor the securities regulatory body of any state or other jurisdiction, has received, considered or passed upon the accuracy or adequacy of the information and representations made in this Agreement. |
| 3.5.5 | The Company understands that the Medigus Shares may not be sold, transferred, or otherwise disposed of without registration under the Securities Act or an exemption therefrom (such as in accordance with Rule 144 under the Securities Act). .The Company further acknowledges that the Medigus Shares may not be sold pursuant to Rule 144 promulgated under the Securities Act unless all of the conditions of Rule 144 are satisfied.. |
4. Representations and Warranties of the Investor. The Investor, hereby represents and warrants, that the following representations are true, correct and complete as of the date hereof and as of the Closing (as if made on the Closing Date); except, in each case, as to such representations and warranties that address matters as of a particular date, which are given only as of such date:
4.1 Authorization; Organization. The Investor is duly organized, validly existing and, if applicable, in good standing under the laws of the jurisdiction in which it has been incorporated and has full power and authority to enter into this Agreement. This Agreement, when executed and delivered by the Investor, and assuming the due authorization, execution and delivery by the other parties hereto and thereto, constitute valid and binding obligations of the Investor, enforceable against the Investor in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, or other laws of general application relating to or affecting the enforcement of creditors’ rights generally, and (ii) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies.
4.1 No Conflict; Consents. The execution, delivery and performance by the Investor of this Agreement and the consummation of the transactions contemplated by this Agreement do not and will not (a) result in any conflict with, or a breach or violation, with or without the passage of time and giving of notice, of any of the terms, conditions or provisions of, or give rise to rights to others (including rights of termination, cancellation or acceleration) under: (i) the governing documents of the Investor; (ii) any judgment, injunction, order, writ, decree or ruling of any court or governmental authority, domestic or foreign, to which the Investor is subject; (iii) any contract or agreement, lease, license or commitment to which the Investor is a party or by which it is bound; (iv) any applicable law; or (b) require the consent, approval or authorization of, registration, qualification or filing with, or notice to any person or any federal, state, local or foreign governmental authority or regulatory authority or agency, on the part of the Investor, which has not heretofore been obtained or made or will be obtained or made prior to Closing.
4.2 Purchase Entirely for Own Account. The Purchased Shares will be acquired for investment for the Investor’s own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and the Investor has no present intention of selling, granting any participation in, or otherwise distributing the same. The Investor does not presently have any contract, undertaking, agreement or arrangement to (i) sell, transfer or grant participation rights to any person with respect to any of the Purchased Shares, and/or (ii) cooperate in the voting of the Purchased Shares. The Investor has not been formed for the specific purpose of acquiring the Purchased Shares.
4.3 Investment Experience; Qualified Investor. The Investor acknowledges that it is able to fend for itself, can bear the economic risk of its investment, and has such knowledge and experience in financial or business matters that it is capable of evaluating and understanding the merits and risks of the investment in the Company. The Investor meets at least one of the criteria listed in the first addendum to the Israeli Securities Law.
4.4 Statutory Lock-Up. The Investor acknowledges and agrees that the Purchased Shares acquired by such Investor are subject to limitations on transfers under Section 15C of the Israeli Securities Law, 1968 and the regulations promulgated thereunder (the “Securities Law”), and the Investor hereby undertakes to comply with such limitations.
4.5 Medigus Shares. The Medigus Shares, when issued, will be duly authorized, validly issued, fully paid, nonassessable, free of any preemptive rights, will have the rights, preferences, privileges, and restrictions set forth in the articles of association of Medigus, and shall be Free and Clear.
5. Conditions to Closing of the Investor. The obligations of the Investor to consummate the transactions contemplated by this Agreement, are subject to the satisfaction, on or before the Closing, of each of the conditions set forth in this Section 5, unless otherwise waived in writing (to the extent such conditions may be waived under applicable law) by the Investor:
5.1 Representations and Warranties. The representations and warranties made by the Company in this Agreement shall have been true and correct in all material respects on and as if made as of the Closing.
5.2 Covenants. All covenants, agreements, and conditions contained in this Agreement to be performed or complied with by the Company prior to the Closing shall have been performed or complied with by the Company, prior to or at the Closing.
5.3 No Legal Proceedings. No administrative agency, commission, regulatory or governmental or judicial body or any other person shall have commenced any legal proceeding preventing, prohibiting or otherwise making this Agreement or the transactions contemplated hereby illegal or that would otherwise prohibit or restrict the performance of the transactions contemplated by this this Agreement.
5.4 TASE Approval. The Company shall have obtained the approval of TASE for the listing of the Purchased Shares on the TASE.
5.5 Audit Committee & Board Approval. The Audit Committee and the board of directors of the Company shall have approved the transactions contemplated by this Agreement.
5.6 Shareholders Approval. The general meeting of shareholders of the Company shall have approved the transactions contemplated by this Agreement by the majority required under Section 275 of the Companies Law, 1999. Such shareholders approval was obtained on November 30, 2023.
6. Conditions of Closing of the Company. The obligations of the Company to consummate the transactions contemplated by this Agreement, are subject to the satisfaction, on or before the Closing, of the conditions set forth under this Section 6, unless otherwise waived in writing by the Company:
6.1 Representations and Warranties. The representations and warranties made by the Investor in this Agreement shall have been true and correct in all material respects on and as if made as of the Closing.
6.2 Payment of the Investment Amount. The Investor shall have paid the Cash Consideration and shall have issued the Medigus Shares as set forth in this Agreement.
6.3 TASE Approval. The Company shall have obtained the approval of TASE for the listing of the Purchased Shares on the TASE.
6.4 Shareholders Approval. The general meeting of shareholders of the Company shall have approved the transactions contemplated by this Agreement by the majority required under Section 275 of the Companies Law, 1999.
7. Miscellaneous
7.1 Successors and Assigns; Assignment. Except as otherwise expressly limited herein, the provisions hereof shall inure to the benefit of, and be binding upon, the transferees, successors, assigns, heirs, executors, and administrators of the parties hereto. This Agreement shall not be assigned by either party without the prior written consent of the other Party.
7.2 Further Assurances. Each of the parties hereto shall perform such further acts and execute and deliver such further documents as may reasonably be necessary to carry out and give full effect to the provisions of this Agreement and the intentions of the parties as reflected thereby.
7.3 Governing Law; Jurisdiction. This Agreement shall be governed by and construed according to the laws of the State of Israel, without regard to the conflict of laws provisions thereof. Any dispute arising under or in relation to this Agreement shall be resolved exclusively by the appropriate court in Tel Aviv-Jaffa district, and each of the parties hereby submits irrevocably and exclusively to the jurisdiction of such court.
7.4 Entire Agreement; Amendment. This Agreement and the Schedules attached hereto constitute the full and entire understanding and agreement between the parties with regard to the subject matters hereof and thereof. The Company makes and has given no other warranties or representations, other than as expressly set out herein. Any term of this Agreement may be amended and the observance of any term hereof may be waived (either prospectively or retroactively and either generally or in a particular instance) only with the written consent of the Company and each Investor. The recitals hereto constitute an integral part of this Agreement.
7.5 Delays and Omissions. No delay or omission to exercise any right, power, or remedy accruing to any party upon any breach or default under this Agreement, shall be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent, or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing.
7.6 Notices. All notices and other communications required or permitted hereunder to be given to a party to this Agreement shall be in writing and shall be emailed or mailed by registered (with return receipt confirmation) , postage prepaid, or otherwise delivered by hand or by messenger, addressed to such party’s address as set forth below or at such other address as the party shall have furnished to each other party in writing in accordance with this provision:
| If to the Company: | Derech Menachem Begin 11, Ramat Gan |
| Israel | |
| Attention: Amihay Hadad, CFO | |
| Telephone: +972-6666611 | |
| E-mail: amihay@gix-internet.com | |
| If to the Investor: | [___] |
| Attention: [___] | |
| Telephone: [___] | |
| E-mail: [___] |
Notice shall be deemed provided (i) in the case of hand delivery or delivery by internationally recognized overnight courier, on the next business day after delivery, (ii) if mailed by registered mail, return receipt requested, two business days following the date it was mailed, and (iii) in the case of a notice sent by e-mail on the date of electronic confirmation of receipt of such e-mail (excluding automatic (out of office) replies) and provided that if such notice is given outside the trading hours on the TASE, such notice shall be deemed provided on the next business day after delivery.
7.7 Severability. If any provision of this Agreement is held by a court of competent jurisdiction to be unenforceable under applicable law, then such provision shall be excluded from this Agreement and the remainder of this Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms; provided, however, that in such event this Agreement shall be interpreted so as to give effect, to the greatest extent consistent with and permitted by applicable law, to the meaning and intention of the excluded provision as determined by such court of competent jurisdiction.
7.8 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and enforceable against the parties actually executing such counterpart, and all of which together shall constitute one and the same instrument.
[Remainder of Page Intentionally Left Blank]
IN WITNESS WHEREOF, the parties have executed this Private Placement Agreement as of the date first written above.
| Gix Internet Ltd. | ||
| By: | /s/ Amihay Hadad / /s/ Amitay Weiss | |
| Amihay Hadad / Amitay Weiss | ||
| CFO/ CEO | ||
| Signatures: |
IN WITNESS WHEREOF, the parties have executed this Private Placement Agreement as of the date first written above.
| INVESTOR: | ||||
|
MEDIGUS LTD. |
||||
| By: | /s/ Eli Yoresh | By: | ||
| Name: | Eli Yoresh | Name: | ||
| Title: | Chairman | Title: | ||
10
Exhibit 8.1
Subsidiaries of the Registrant
| Legal Name of Subsidiary | Jurisdiction of Organization | |
| Jeffs’ Brands Ltd.* | Israel | |
| Eventer Technologies Ltd. | Israel | |
| Gix Internet Ltd. | Israel | |
| GERD IP, Inc. | Delaware | |
| Fuel Doctor Holdings, Inc. | Delaware |
| * | As of December 31, 2023, the Registrant held 34.11% of Jeffs’ Brand Ltd.’s issued and outstanding share capital. After December 31, 2023, the Registrant’s position in Jeffs’ Brands Ltd. was diluted, such that as of the date of this Annual Report on Form 20-F, the Registrant holds 7.98% of the issued and outstanding share capital of Jeffs’ Brands Ltd. and Jeffs’ Brands Ltd. is no longer considered a subsidiary of the Registrant |
Exhibit 12.1
CERTIFICATION
I, Liron Carmel, certify that:
| 1. | I have reviewed this annual report on Form 20-F of Xylo Technologies Ltd., formerly known as Medigus Ltd.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; |
| 4. | The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and |
| 5. | The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting. |
| Date: April 22, 2024 | /s/ Liron Carmel |
| Liron Carmel | |
| Chief Executive Officer |
Exhibit 12.2
CERTIFICATION
I, Tali Dinar, certify that:
| 1. | I have reviewed this annual report on Form 20-F of Xylo Technologies Ltd., formerly known as Medigus Ltd.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; |
| 4. | The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and |
| 5. | The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting. |
| Date: April 22, 2024 | /s/ Tali Dinar |
| Tali Dinar | |
| Chief Financial Officer |
Exhibit 13.1
CERTIFICATION
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT
OF 2002
(SUBSECTIONS (a) AND (b) OF SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE)
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), the undersigned officer of Xylo Technologies Ltd., formerly known as Medigus Ltd., a company organized under the laws of the State of Israel (the “Company”), does hereby certify that, to his knowledge:
| 1. | This Annual Report on Form 20-F for the year ended December 31, 2023 (the “Form 20-F”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
| 2. | The information contained in the Form 20-F fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: April 22, 2024 | /s/ Liron Carmel |
| Liron Carmel | |
| Chief Executive Officer |
This certification accompanies this annual report on Form 20-F pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.
Exhibit 13.2
CERTIFICATION
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT
OF 2002
(SUBSECTIONS (a) AND (b) OF SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE)
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), the undersigned officer of Xylo Technologies Ltd., formerly known as Medigus Ltd., a company organized under the laws of the State of Israel (the “Company”), does hereby certify that, to his knowledge:
| 1. | This Annual Report on Form 20-F for the year ended December 31, 2023 (the “Form 20-F”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
| 2. | The information contained in the Form 20-F fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: April 22, 2024 | /s/ Tali Dinar |
| Tali Dinar | |
| Chief Financial Officer |
This certification accompanies this annual report on Form 20-F pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.
Exhibit 15.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statement No. 333-271984 on Form F-3 and Registration Statement Nos. 333-206803, 333-221019, 333-229429, 333-258624 and 333-274190 on Form S-8 of our report dated April 22, 2024, relating to the financial statements of Xylo Technologies Ltd., formerly known as Medigus Ltd., appearing in this Annual Report on Form 20-F for the year ended December 31, 2023.
/s/ Brightman Almagor Zohar & Co.
Certified Public Accountants
A Firm in the Deloitte Global Network
Tel Aviv, Israel
April 22, 2024
Exhibit 97.1
MEDIGUS LTD.
POLICY FOR RECOVERY OF ERRONEOUSLY AWARDED COMPENSATION
Medigus Ltd. (the “Company”) has adopted this Policy for Recovery of Erroneously Awarded Compensation (the “Policy”), effective as of October 2, 2023 (the “Effective Date”). Capitalized terms used in this Policy but not otherwise defined herein are defined in Section 11.
| 1. | Persons Subject to Policy |
This Policy shall apply to and be binding and enforceable on current and former Officers. In addition, the Committee and the Board may apply this Policy to persons who are not Officers, and such application shall apply in the manner determined by the Committee and the Board in their sole discretion.
| 2. | Compensation Subject to Policy |
This Policy shall apply to Incentive-Based Compensation received on or after the Effective Date. For purposes of this Policy, the date on which Incentive-Based Compensation is “received” shall be determined under the Applicable Rules, which generally provide that Incentive-Based Compensation is “received” in the Company’s fiscal period during which the relevant Financial Reporting Measure is attained or satisfied, without regard to whether the grant, vesting or payment of the Incentive-Based Compensation occurs after the end of that period.
| 3. | Recovery of Compensation |
In the event that the Company is required to prepare a Restatement, the Company shall recover, reasonably promptly and in accordance with Section 4 below, the portion of any Incentive-Based Compensation that is Erroneously Awarded Compensation, unless the Committee and the Board have determined that recovery from the relevant current or former Officer would be Impracticable. Recovery shall be required in accordance with the preceding sentence regardless of whether the applicable Officer engaged in misconduct or otherwise caused or contributed to the requirement for the Restatement and regardless of whether or when restated financial statements are filed by the Company. For clarity, the recovery of Erroneously Awarded Compensation under this Policy will not give rise to any Officer’s right to voluntarily terminate employment for “good reason” or due to a “constructive termination” (or any similar term of like effect) under any plan, program or policy of or agreement with the Company or any of its affiliates.
| 4. | Manner of Recovery; Limitation on Duplicative Recovery |
The Committee and the Board shall, in its sole discretion, determine the manner of recovery of any Erroneously Awarded Compensation, which may include, without limitation, reduction or cancellation by the Company or an affiliate of the Company of Incentive-Based Compensation or Erroneously Awarded Compensation, reimbursement or repayment by any person subject to this Policy, and, to the extent permitted by law, an offset of the Erroneously Awarded Compensation against other compensation payable by the Company or an affiliate of the Company to such person. Notwithstanding the foregoing, unless otherwise prohibited by the Applicable Rules, to the extent this Policy provides for recovery of Erroneously Awarded Compensation already recovered by the Company pursuant to Section 304 of the Sarbanes-Oxley Act of 2002 or Other Recovery Arrangements, the amount of Erroneously Awarded Compensation already recovered by the Company from the recipient of such Erroneously Awarded Compensation may be credited to the amount of Erroneously Awarded Compensation required to be recovered pursuant to this Policy from such person.
| 5. | Administration |
This Policy shall be administered, interpreted and construed by the Committee, which is authorized to make all determinations necessary, appropriate or advisable for such purpose. The Board may re-vest in itself the authority to administer, interpret and construe this Policy in accordance with applicable law, and in such event references herein to the “Committee” shall be deemed to be references to the Board. Subject to any permitted review by the applicable national securities exchange or association pursuant to the Applicable Rules, all determinations and decisions made by the Committee pursuant to the provisions of this Policy shall be final, conclusive and binding on all persons, including the Company and its affiliates, shareholders and employees. The Committee may delegate administrative duties with respect to this Policy to one or more directors or employees of the Company, as permitted under applicable law, including any Applicable Rules.
| 6. | Interpretation |
This Policy shall be interpreted and applied in a manner that is consistent with the requirements of the Applicable Rules, and to the extent this Policy is inconsistent with such Applicable Rules, it shall be deemed amended to the minimum extent necessary to ensure compliance therewith.
| 7. | No Indemnification; No Liability |
The Company shall not indemnify or insure any person against the loss of any Erroneously Awarded Compensation pursuant to this Policy, nor shall the Company directly or indirectly pay or reimburse any person for any premiums for third-party insurance policies that such person may elect to purchase to fund such person’s potential obligations under this Policy. None of the Company, an affiliate of the Company or any member of the Committee or the Board shall have any liability to any person as a result of actions taken under this Policy.
| 8. | Application; Enforceability |
Except as otherwise determined by the Committee or the Board, the adoption of this Policy does not limit, and is intended to apply in addition to, any Other Recovery Arrangements. Without limiting the foregoing, in the event of a conflict between this Policy and the Compensation Policy, the latter shall prevail, except with respect to the recovery of any portion of Incentive-Based Compensation that is Erroneously Awarded Compensation that would not be recoverable under the Compensation Policy, in which case this Policy shall prevail. Subject to Section 4, the remedy specified in this Policy shall not be exclusive and shall be in addition to every other right or remedy at law or in equity that may be available to the Company or an affiliate of the Company or is otherwise required by applicable law and regulations.
| 9. | Severability |
The provisions in this Policy are intended to be applied to the fullest extent of the law; provided, however, to the extent that any provision of this Policy is found to be unenforceable or invalid under any applicable law, such provision will be applied to the maximum extent permitted, and shall automatically be deemed amended in a manner consistent with its objectives to the extent necessary to conform to any limitations required under applicable law.
| 10. | Amendment and Termination |
The Board or the Committee may amend, modify or terminate this Policy in whole or in part at any time and from time to time in its sole discretion. This Policy will terminate automatically when the Company does not have a class of securities listed on a national securities exchange or association in the U.S.
| 11. | Definitions |
“Applicable Rules” means Section 10D of the Exchange Act, Rule 10D-1 promulgated thereunder, the listing rules of the national securities exchange or association on which the Company’s securities are listed, and any applicable rules, standards or other guidance adopted by the Securities and Exchange Commission or any national securities exchange or association on which the Company’s securities are listed.
“Board” means the Board of Directors of the Company.
“Compensation Policy” means the Company’s compensation policy for officers and directors, as adopted in accordance with the Israeli Companies Law 5759-1999 and as in effect from time to time.
“Committee” means the Compensation Committee of the Board or, in the absence of such a committee, a majority of the independent directors serving on the Board.
“Erroneously Awarded Compensation” means the amount of Incentive-Based Compensation received by a current or former Officer that exceeds the amount of Incentive-Based Compensation that would have been received by such current or former Officer based on a restated Financial Reporting Measure, as determined on a pre-tax basis in accordance with the Applicable Rules.
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
“Financial Reporting Measure” means any measure determined and presented in accordance with the accounting principles used in preparing the Company’s financial statements, and any measures derived wholly or in part from such measures, including GAAP, IFRS and non-GAAP/IFRS financial measures, as well as stock price and total shareholder return.
“GAAP” means United States generally accepted accounting principles.
“IFRS” means international financial reporting standards as adopted by the International Accounting Standards Board.
“Impracticable” means (a) the direct expense paid to third parties to assist in enforcing recovery would exceed the Erroneously Awarded Compensation; provided that the Company has (i) made reasonable attempt(s) to recover the Erroneously Awarded Compensation, (ii) documented such reasonable attempt(s) and (iii) provided such documentation to the relevant listing exchange or association, (b) the recovery would violate the Company’s home country laws adopted prior to November 28, 2022 pursuant to an opinion of home country counsel; provided that the Company has (i) obtained an opinion of home country counsel, acceptable to the relevant listing exchange or association, that recovery would result in such a violation and (ii) provided such opinion to the relevant listing exchange or association, or (c) recovery would likely cause an otherwise tax-qualified retirement plan, under which benefits are broadly available to employees of the Company, to fail to meet the requirements of 26 U.S.C. 401(a)(13) or 26 U.S.C. 411(a) and the regulations thereunder.
“Incentive-Based Compensation” means, with respect to a Restatement, any compensation that is granted, earned, or vested based wholly or in part upon the attainment of one or more Financial Reporting Measures and received by a person: (a) after such person began service as an Officer; (b) who served as an Officer at any time during the performance period for that compensation; (c) while the Company has a class of securities listed on a national securities exchange or association; and (d) during the applicable Three-Year Period.
“Officer” means each person who the Company determines serves as a Company officer, as defined in Section 16 of the Securities Exchange Act of 1934, as amended.
“Other Recovery Arrangements” means any clawback, recoupment, forfeiture or similar policies or provisions of the Company or its affiliates, including any such policies or provisions of such effect contained in any employment agreement, bonus plan, incentive plan, equity-based plan or award agreement thereunder or similar plan, program or agreement of the Company or an affiliate or required under applicable law (including, without limitation, the Compensation Policy).
“Restatement” means an accounting restatement to correct the Company’s material noncompliance with any financial reporting requirement under securities laws, including restatements that correct an error in previously issued financial statements (a) that is material to the previously issued financial statements or (b) that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period.
“Three-Year Period” means, with respect to a Restatement, the three completed fiscal years immediately preceding the date that the Board, a committee of the Board, or the officer or officers of the Company authorized to take such action if Board action is not required, concludes, or reasonably should have concluded, that the Company is required to prepare such Restatement, or, if earlier, the date on which a court, regulator or other legally authorized body directs the Company to prepare such Restatement. The “Three-Year Period” also includes any transition period (that results from a change in the Company’s fiscal year) within or immediately following the three completed fiscal years identified in the preceding sentence. However, a transition period between the last day of the Company’s previous fiscal year end and the first day of its new fiscal year that comprises a period of nine to 12 months shall be deemed a completed fiscal year.
ACKNOWLEDGMENT AND CONSENT TO
POLICY FOR RECOVERY OF ERRONEOUSLY AWARDED COMPENSATION
The undersigned has received a copy of the Policy for Recovery of Erroneously Awarded Compensation (the “Policy”) adopted by Medigus Ltd. (the “Company”), and has read and understands the Policy. Capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Policy.
As a condition of receiving Incentive-Based Compensation from the Company, the undersigned agrees that any Incentive-Based Compensation received on or after the Effective Date is subject to recovery pursuant to the terms of the Policy. To the extent the Company’s recovery right conflicts with any other contractual rights the undersigned may have with the Company, the undersigned understands that the terms of the Policy shall supersede any such contractual rights. The terms of the Policy shall apply in addition to any right of recoupment against the undersigned under the Compensation Policy or applicable law and regulations.
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