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What changed in ACTELIS NETWORKS INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of ACTELIS NETWORKS INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+312 added−293 removedSource: 10-K (2024-03-26) vs 10-K (2023-03-29)

Top changes in ACTELIS NETWORKS INC's 2023 10-K

312 paragraphs added · 293 removed · 205 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

87 edited+27 added−19 removed80 unchanged
Biggest changeProduct Specifications Our products use advanced signal processing implemented at the system level, with an approach that treats multiple copper lines as one multi-line channel, which we believe to achieve the following benefits: ● Increase the effective bandwidth of the communication link by 50% to 500% compared to traditional, single line bandwidth; ● Extend connectivity distances from a few kilometers up to 100Km (for longer range topologies and slower speeds), and improves coverage area for connectivity by 2X to 4X times for the higher speed services; and ● Improve communication reliability even if copper lines are of poor quality, so that network operators can, in most cases, guarantee their customers what we believe are Service Level Availabilities (SLAs) similar to that of fiber optic infrastructure.
Biggest changeThis includes consulting, telephone troubleshooting and remote support, training, product repairs, and software updates. 6 Product Specifications Our products use advanced signal processing implemented at the system level, with an approach that treats multiple copper lines as one multi-line channel, which we believe to achieve the following benefits: ● Speeds ranging from 10MB to 10GBPS; distances up to 100Km (speeds a lower for longer distances) infrastructure Supporting any hybrid combination of new Fiber infrastructure and existing copper and coax infrastructure, supporting data security an encryption protocols, certified for FIPS by US DoD labs; supporting outdoor hardened environmental requirements dense and compact to save space and allow for flexible location setting. ● Automatic calibration tools and automated management SW enable hassle-free installation withing hours vs. weeks over existing wiring. ● Improve communication reliability even if copper lines are of poor quality, so that network operators can, in most cases, guarantee their customers what we believe are Service Level Availabilities (SLAs) and uptime similar to that of fiber optic infrastructure regardless of the media used, and uptime that allows our customers to support mission-critical applications.
Our patent protected hybrid fiber-copper networking solutions deliver excellent communication over fiber to locations that may be easy to reach with new fiber. However, for locations that are difficult, or too costly to reach with fiber, we can upgrade existing copper lines to deliver cyber-hardened, high-speed connectivity without needing to replace the existing copper infrastructure with new fiber.
Our patent protected hybrid fiber networking solutions deliver excellent communication over fiber to locations that may be easy to reach with new fiber. However, for locations that are difficult, or too costly to reach with fiber, we can upgrade existing copper lines to deliver cyber-hardened, high-speed connectivity without needing to replace the existing copper infrastructure with new fiber.
It includes detailed monitoring, logging and tracking of functions both locally and remotely, to allow for easy debugging and configuration of networks, security management, graphical display of network topologies, management of licenses, remote software download, connectivity to other network and management systems.
It includes detailed monitoring, logging and tracking of functions both locally and remotely, to allow for easy debugging and configuration of networks, security management, graphical display of network topologies, management of licenses, remote software download, and connectivity to other network and management systems.
We believe that over the past years, we have built a reputation for providing, according to our customers, reliable, high-quality communication solutions with better copper and hybrid fiber-copper performance than other alternatives on the market.
We believe that over the past years, we have built a reputation for providing, according to our customers, reliable, high-quality communication solutions with better copper and hybrid fiber performance than other alternatives on the market.
EMS is optional and is being sold separately from our hardware products, and has been sold either as per-element license, or as a license for a whole network. Our customers may request added functions and features for their specific need which we can customize for an additional fee.
EMS is optional and is being sold separately from our hardware products, and has been sold either as a per-element license, or as a license for a whole network. Our customers may request added functions and features for their specific need which we can customize for an additional fee.
We have developed and implemented a multi-layered “Triple Shield” technology that includes (i) information coding for resilience and security (for copper wires); (ii) multi-line information scrambling for increased resilience and added security (for copper wires); and (iii) an additional 256-bit hardware-based real-time encryption of data running over fiber or copper — creating end-to-end protection for the entire hybrid network.
We have developed and implemented a multi-layered “Triple Shield” technology that includes (i) information coding for resilience and security (for copper wires); (ii) multi-line information scrambling for increased resilience and added security (for copper wires); and (iii) an additional 256-bit hardware-based real-time encryption of data running over fiber, coax or copper — creating end-to-end protection for the entire hybrid network.
Using our patented signal-processing software and hardware technology and system architecture, we can “upgrade” these lines, by deriving fiber-grade performance from them, and integrate them with new fiber installations, where available, to create a seamless end-to-end hybrid-fiber-copper network, enabling fast, reliable, and safe fiber-grade connectivity that is rapid to deploy and highly cost effective.
Using our patented signal-processing software and hardware technology and system architecture, we can “upgrade” these lines, by deriving fiber-grade performance from them, and integrate them with new fiber installations, where available, to create a seamless end-to-end hybrid-fiber network, enabling fast, reliable, and safe fiber-grade connectivity that is rapid to deploy and highly cost effective.
We believe that these advantages lead to very good value for our customers for both rapid deployment to all locations, regardless of whether these locations are hard to reach. We also believe that these characteristics provide us with a competitive advantages against many, if not all, companies in our space, such as Cisco, Rad, Nokia, Siemens, Belden and others.
We believe that these advantages lead to very good value for our customers for both rapid deployment to all locations, regardless of whether these locations are hard to reach. We also believe that these characteristics provide us with a competitive advantage against many, if not all, companies in our space, such as Cisco, Rad, Nokia, Siemens, Belden and others.
We believe that connecting these 5G small cells to the network cost effectively and rapidly, in both hard-to-reach and easy-to-reach locations, as well as powering them cost-effectively is key to successful and timely deployment. 5G networks deployment is slowed down, as we believe, by the challenge to provide connectivity and power to millions of base station locations that are required for an effective 5G network.
We believe that connecting these 5G small cells to the network cost effectively and rapidly, in both hard-to-reach and easy-to-reach locations, as well as powering them cost-effectively is key to successful and timely deployment. 13 5G networks deployment is slowed down, as we believe, by the challenge to provide connectivity and power to millions of base station locations that are required for an effective 5G network.
Our U.S.-based employees are employed through a Professional Employer Organization, providing employee benefits and services. We believe our culture and principles enable us to attract, retain, motivate and develop our workforce as well as drive employee engagement. We believe an engaged workforce leads to a more innovative and productive company that serves its customers better.
Our U.S.-based employees are employed through a Professional Employer Organization, providing employee benefits and services. 14 We believe our culture and principles enable us to attract, retain, motivate and develop our workforce as well as drive employee engagement. We believe an engaged workforce leads to a more innovative and productive company that serves its customers better.
For example, our EAD is used to connect street traffic lights and nearby controllers, cameras and IoT devices to the traffic control center, where either fiber, copper or coax infrastructure cabling exists. This product can be installed either indoors or outdoors, including under extreme weather conditions. ● ML2300 Aggregator Series.
For example, our EAD is used to connect street traffic lights and nearby controllers, cameras and IoT devices to the traffic control center, where either fiber, copper or coax infrastructure cabling exists. This product family can be installed either indoors or outdoors, including under extreme weather conditions. ● ML2300 Aggregator Series.
Since our inception, our business was focused on serving telecommunication service providers, also known as Telcos, for enterprises and residential customers. Our products and solutions have been deployed with more than 100 telecommunication service providers worldwide, in enterprise, residential and mobile base station connectivity applications.
Since our inception, our business was focused on serving telecommunication service providers (Telecom), also known as Telcos, for enterprises and residential customers. Our products and solutions have been deployed with more than 100 telecommunication service providers worldwide, in enterprise, residential and mobile base station connectivity applications.
We believe this strategy will provide for accelerated growth and maximize investor returns. 12 Environmental We are not aware of any environmental laws that have been enacted, nor are we aware of any such laws being contemplated for the future, that impact issues specific to our business.
We believe this strategy will provide for accelerated growth and maximize investor returns. Environmental We are not aware of any environmental laws that have been enacted, nor are we aware of any such laws being contemplated for the future, that impact issues specific to our business.
Our unique portfolio of hybrid fiber-copper, environmentally hardened aggregation switches, high density Ethernet devices, advanced management software and cyber-protection capabilities, unlocks the hidden value of essential networks, delivering safer connectivity for rapid, cost-effective deployment.
Our unique portfolio of hybrid fiber, environmentally hardened aggregation switches, high density Ethernet devices, advanced management software and cyber-protection capabilities, unlocks the hidden value of essential networks, delivering safer connectivity for rapid, cost-effective deployment.
The next step was to integrate our existing technologies into hybrid-fiber-copper building blocks, that provide seamless communication over mixed, real-life fiber-copper networks, and many other advantages.
The next step was to integrate our existing technologies into hybrid-fiber building blocks, that provide seamless communication over mixed, real-life fiber-copper-coax networks, and many other advantages.
Our Technology To address many of the most difficult wide-area IoT connectivity challenges, we combine the benefits of fiber-optic infrastructure, where available, with the hidden potential in existing legacy copper/coax wires that already connect billions of locations and devices globally (often at low speed, experiencing interruptions and presenting poor information security, delivering mostly voice, or low speed control signals).
To address many of the most difficult wide-area IoT connectivity challenges, we combine the benefits of fiber-optic infrastructure, where available, with the hidden potential in existing legacy copper/coax wires that already connect billions of locations and devices globally (often at low speed, experiencing interruptions and presenting poor information security, delivering mostly voice, or low speed control signals).
Attempts to deliver high-speed would encounter many problems, including signal attenuation, interference from other lines in the Bundle and from any external electrical sources, variable quality and signal interruptions, and variable latency. Such wires are also relatively easy to tap into physically, and the information is also radiated outside of the cable and may be exposed to security threats.
Attempts to deliver high-speed would encounter many problems, including signal attenuation, cross-talk interference from other lines in the Bundle and from any external electrical sources, variable quality and signal interruptions, and variable latency. Such wires are also relatively easy to tap into physically, and the information is also radiated outside of the cable and may be exposed to security threats.
Cyber Security IoT networks are vulnerable to cyber-attacks as they often carry data related to critical processes and applications, such as provision of energy, water, gas and transportation services, to large populations. We believe that this data requires enhanced security within the network. 3 Our products all include cyber safety features that we are constantly developing.
Cybersecurity IoT networks are vulnerable to cyber-attacks as they often carry data related to critical processes and applications, such as provision of energy, water, gas and transportation services, to large populations. We believe that this data requires enhanced security within the network. Our products all include cyber safety features that we are constantly developing.
For example, we recently selected Norseman Technologies to serve as a business partner integrator of our products to the Federal and military markets in the US through their acquisition contracts. Additionally, we signed up new business partners in Europe and Asia Pacific, such as in Singapore, China, Vietnam and Malaysia.
For example, in 2022, we selected Norseman Technologies to serve as a business partner integrator of our products to the Federal and military markets in the US through their acquisition contracts. Additionally, we signed up new business partners in Europe and Asia Pacific, such as in Singapore, China, Vietnam and Malaysia.
The repeater is installed outdoors and is resistant to cold, hot, rain, ice or snow. Our repeaters have been installed along rail systems in Alaska and Canada and have been safely performing for more than five years. 5 ● Advanced MetaLIGHT EMS software.
The repeater is installed outdoors and is resistant to cold, hot, rain, ice or snow. Our repeaters have been installed along rail systems in Alaska and Canada and have been safely performing for more than five years. ● Advanced MetaLIGHT/Gigaline EMS software.
Our Triple Shield technology includes signal processing SW that is implementing optimization of multi-line signal coordination, the elimination of interference to boost connectivity performance, the optimization of coding for resilience and security, multi-line data scrambling for low latency, increased resilience, and added security.
Our Triple Shield technology includes signal processing software that is implementing optimization of multi-line signal coordination, the elimination of interference to boost connectivity performance, the optimization of coding for resilience and security, multi-line data scrambling for low latency, increased resilience, and added security.
Our business partners are currently located in North America, Central America, throughout Europe, India, Singapore, China, Australia, Vietnam, Malaysia and Japan. Once we identify a relevant business opportunity in a new territory, we seek to partner with local business partners or agents.
Our business partners are currently located in North America, Central America, Europe, India, Singapore, China, Australia, Vietnam and Japan. Once we identify a relevant business opportunity in a new territory, we seek to partner with local business partners or agents.
Our raw material consists of electronic chipsets, FPGA components, modems, and other electronic and mechanical components. Most of those components are procured by our contract manufacturers from Israel and we assist them as needed in specific cases.
Our raw material consists of electronic chipsets, FPGA components, modems, and other electronic and mechanical components. Most of those components are procured by our contract manufacturers and we assist them as needed in specific cases.
We expect that the acceptance process for our new products for existing customers will become simpler due to customers positive accumulated experience working with us. We also have many non-exclusive third-party distributors, resellers and system integrators and partners around the world, located in the U.S., Canada, Mexico, Costa Rica, Germany, Italy, Spain, Scandinavian countries, Greece, Netherlands, Japan, and India.
We expect that the acceptance process for our new products for existing customers will become simpler due to customers positive accumulated experience working with us. We also have many non-exclusive third-party distributors, resellers and system integrators and partners around the world, located in the U.S., Canada, Philippines, Germany, Italy, Spain, Scandinavian countries, Greece, Netherlands, Japan and India.
We have successfully transitioned from one contract manufacturer to another in the past, and we believe that a transition would be achievable, if necessary, in the future typically within three to six months. 10 Warranty Our products are generally sold with a standard warranty of two years for product defects, as well a technical center support, during normal business hours, for incidents raised by properly trained personnel.
We have successfully transitioned from one contract manufacturer to another in the past, and we believe that a transition would be achievable, if necessary, in the future typically within three to six months. 12 Warranty Our products are generally sold with a standard warranty of two years for product defects, as well as technical center support with properly trained personnel, during normal business hours, to address incidents raised customers.
In addition, our solutions can also provide power over existing copper and coax lines to remotely power up network elements and IoT components connected to them (like cameras, small cell and wifi base stations sensors etc.).
In addition, our solutions can also provide power over existing copper and coax lines to remotely power up network elements and IoT components connected to them (like cameras, small cell and Wi-Fi base stations sensors etc.).
See “Risk Factors — New competitors may enter the marketplace and begin to compete with the Company.” Manufacturing, Procurement and Logistics We take advantage of the combination of our inhouse skills and those of the third parties we partner with to execute our operational tasks which are planning and manufacturing finished goods inventory, planning and procuring raw materials and delivering products to our customers based on promised delivery schedules.
See “Item 1.A - Risk Factors — New competitors may enter the marketplace and begin to compete with the Company.” Manufacturing, Procurement and Logistics We take advantage of the combination of our inhouse skills and those of the third parties we partner with to execute our operational tasks which are planning and manufacturing finished goods inventory, planning and procuring raw materials and delivering products to our customers based on promised delivery schedules.
EADs (Ethernet Access Devices) are a series of products which are cost efficient, compact and hardened Ethernet switches for hybrid-fiber-copper networks, located near the IoT devices connected to the network.
EADs (Ethernet Access Devices) are a series of products which are cost efficient, compact and hardened Ethernet switches for long-distance hybrid-fiber networks, located near the IoT devices connected to the network.
According to Grand View Research, the global small cell 5G network market size was valued at $999.43 million in 202 1 .
According to Grand View Research, the global small cell 5G network market size was valued at $999.43 million in 2021.
We believe our product offering offers a unique solution on the market in terms of value, by providing the following: ● High performance hybrid-fiber-copper communication system ● Speeds from 10Mbps to 10Gbps ● Reach of up to 100Km (speed declines over long distances in copper) ● Robust connectivity allowing Gigabit-grade service SLAs in various harsh environments over copper or fiber ● Cyber-protection on several levels, including Triple Shield Protection: ● Multi-line data scrambling and coding (copper) ● 256-bit system-wide encryption ● System level protection (encryption and other protections) of management software, operating system and traffic flow ● Dense, feature-full design to replace multiple alternative elements in the market, and allow for installation that is compact, lower cost and power saving: ● Advanced switching functions supporting complex network topologies ● Support for both advanced, digital IoT devices as well as existing analog devices with serial interfaces — to save the need to replace these devices while allowing them to join the digital network ● Power feeding for cameras and other IoT devices with the data cable ● Ability to install our IoT building blocks in remote locations with no power.
We believe our products offer a unique solution on the market in terms of value, by providing the following: ● High performance hybrid-fiber communication system ● Speeds from 10Mbps to 10Gbps ● Reach of up to 100Km (speed declines over long distances in copper) ● Robust connectivity allowing Gigabit-grade service SLAs in various harsh environments over copper, coax or fiber Rapid installation in hours vs. weeks or months if new infrastructure is needed ● Cyber-protection on several levels, including Triple Shield Protection: ● Multi-line data scrambling and coding (copper) ● 256-bit system-wide encryption ● System level protection (encryption and other protections) of management software, operating system and traffic flow Military — grade, DoD certified FIPS cyber protection ● Dense, feature-full design to replace multiple alternative elements in the market, and allow for installation that is compact, lower cost and power saving: ● Advanced switching functions supporting complex network topologies ● Support for both advanced, digital IoT devices as well as existing analog devices with serial interfaces — to save the need to replace these devices while allowing them to join the digital network ● Power feeding for cameras and other IoT devices with the data cable 8 ● Ability to install our IoT building blocks in remote locations with no power.
Our products are already capable to deliver sensitive information for many critical IoT applications, and we invest intend to invest more in making this a strong differentiator, and to have our products recognized as the most cyber-safe IoT building blocks in the growing secure IoT communication market.
Our products are already capable of delivering sensitive information for many critical IoT applications, and we are investing more in making this a strong differentiator, and to have our products recognized as the most cyber-safe IoT building blocks in the growing secure IoT communication market.
Beyond that, we are expanding our cyber-protection capabilities to provide protection not only of the data that is running in the system, but also to help protect elements and devices connected to the network, especially in the interface between the physical and cybersecurity systems.
Beyond that, we are expanding our cyber-protection capabilities to provide protection not only of the data that is running in the system but also to help protect elements and devices connected to the network, especially in the interface between the physical and cybersecurity systems. We are referring to such objective as Cyber-Aware Networking.
We believe that our strong reputation as a provider of high-quality solutions, and the trust we gain from being recognized as a solid solution provider by prominent customers (such as the U.S. DoD) help us execute our strategy. Products ● MetaLight ML500/600/700/800/900 Series.
We believe that our strong reputation as a provider of high-quality solutions, and the trust we gain from being recognized as a solid solution provider by prominent customers (such as the U.S. DoD) help us execute our strategy. Products ● Gigaline 800/900/5000/6000 Series .
Since our IPO, we invested in further strengthening our focus on adding more cybersecurity capabilities and solutions for our customers. We have invested in software and hardware capabilities enhancing encryption of the data carried by our systems; we have introduced encrypted, cyber-hardened network management protocols; we have also introduced encryption of operating systems running on our devices.
We continue to invest in further strengthening our focus on cybersecurity capabilities and solutions for our customers. We have invested in software and hardware capabilities enhancing encryption of the data carried by our systems; we have introduced encrypted, cyber-hardened network management protocols; we have also introduced encryption of operating systems running on our devices.
We have hundreds of large, medium and small network operators as end users of our products, including municipalities, railway, electricity, water infrastructure companies and military customers. We believe that we enjoy a good reputation for offering reliable, high-performance and high-end products.
We have hundreds of large, medium and small network operators as end users of our products, including municipalities, railway, airports, electricity, water infrastructure companies as well as other governmental agencies and military customers. We believe that we enjoy a strong reputation for offering reliable, high-performance and high-end products.
Market Verticals We Address We execute our vision through a multi-channel, global approach that combines our expertise, with the expertise of our trusted business partners, system integrators, distributors, and consultants. We operate a vertical based marketing plan where we dedicate efforts and resources to each vertical.
We refer to such objective as Cyber-Aware Networking. 3 Market Verticals We Address We execute our vision through a multi-channel, global approach that combines our expertise, with the expertise of our trusted business partners, system integrators, distributors, and consultants. We operate a vertical based marketing plan where we dedicate efforts and resources to each vertical.
In addition to these main benefits, we have focused our efforts and implemented technologies in our products in order to achieve the following: ● Automatic multi-channel calibration based real-time line quality analysis during installation (which greatly shortens the installation process and saves personnel time); ● Transmission in the copper lines to take into account signals in neighboring lines to minimize crosstalk interference and be “Spectrally Friendly”; ● Multi-line spatial coding scrambling of data in a way that enhances connection immunity to interference, and makes tapping into the data very difficult; ● Integration of remote powering and data on the same copper pairs; ● Minimizing transmission delay to support delay-sensitive applications; and ● Ability to safely, and accurately transmit clock signals for cellular base station synchronization (not available yet for 5G).
In addition to these main benefits, we have focused our efforts and implemented technologies in our products in order to achieve the following: ● Transmission in the copper lines to take into account signals in neighboring lines to minimize crosstalk interference and be “Spectrally Friendly”; ● Multi-line spatial coding scrambling of data in a way that enhances connection immunity to interference, and makes tapping into the data very difficult; ● Integration of remote powering and data on the same copper pairs; ● Minimizing transmission delay to support delay-sensitive applications; and ● Ability to safely, and accurately transmit clock signals for cellular base station synchronization (not available yet for 5G).
In recent years, as we have further developed our technology and introduced additional products, we turned our focus on serving the wide-area IoT markets. Our operations are focused on our fast-growing IoT business, while maintaining our commitment to our existing Telco customers.
In recent years, as we have further developed our technology and rolled out additional products, we turned our focus on serving the IoT markets. Our operations are focused on our fast-growing IoT business while maintaining our commitment to our existing Telecom customers.
For the years ended December 31, 2022 and December 31, 2021, our top ten customers in the aggregate accounted for approximately 82% and 78% of our revenues. We have incurred significant losses and negative cash flows from operations and as of December 31, 2022, we had an accumulated deficit of $33.4 million.
For the years ended December 31, 2023 and December 31, 2022, our top ten customers in the aggregate accounted for approximately 66% and 82% of our revenues. We have incurred significant losses and negative cash flows from operations and as of December 31, 2023, we had an accumulated deficit of $39. 7 million.
EMS may also manage other software keys and elements (for example, for encryption or other cyber-safety functions), for which customers may pay separately for the licenses. We also offer support and maintenance services together with the sales of our product. This includes consulting, telephone troubleshooting and remote support, training, product repairs and software updates.
EMS may also manage other software keys and elements (for example, for encryption or other cyber-safety functions), for which customers may pay separately for the licenses. We also offer support and maintenance services together with the sales of our product.
We seek to cover the geographic territories in which we sell, in combination with the target verticals described above. In this effort, we take advantage of existing strong relationships with business partners in the United States, Canada, Europe, Latin America, and Asia Pacific and also seek to recruit new business partners that can help us expand our coverage.
In this effort, we take advantage of existing strong relationships with business partners in the United States, Canada, Europe, Latin America, and Asia Pacific and also seek to recruit new business partners that can help us expand our coverage.
For the years ended December 31, 2022 and December 31, 2021, our Telco customers in the aggregate accounted for approximately 35% and 48% of our revenues, respectively. We derive a significant portion of our revenue from a limited number of our customers.
For the years ended December 31, 2023 and December 31, 2022, our IoT customers in the aggregate accounted for approximately 73% and 65% of our revenues, respectively. We derive a significant portion of our revenue from a limited number of our customers.
We currently have projects within this vertical in North America, Europe and Asia Pacific. 8 Airports Airports include customers who are either a State or Federal airport agency, or a service provider to the airport industry. The types of applications within this vertical requiring communication are airport security, baggage management, and airport Wi-Fi.
The types of applications within this vertical that requiring communication include radars, perimeter security systems, energy systems, offices, laboratories and residences. We currently have projects within this vertical in North America, Europe and Asia Pacific. Airports Airports include customers who are either a State or Federal airport agency, or a service provider to the airport industry.
These elements include switches, typically enhanced with signal processing SW, concentrators, reach extenders, data encryption elements, power sources and a smart networking software that allows for remote management and monitoring down to the single element and line performance, configuration management making complex network topologies easy to deploy, analyze, debug and remote SW download to help with remote handling of large and small networks. 2 Our solutions can also provide remote power over the same existing copper lines to power up network elements and IoT components connected to them (like cameras and meters).
These elements include switches, typically enhanced with signal processing SW, concentrators, reach extenders, data encryption elements, power sources and a smart networking software that allows for remote management and monitoring down to the single element and line performance, configuration management making complex network topologies easy to deploy, analyze, debug and remote SW download to help with remote handling of large and small networks.
Connecting power lines to millions of IoT locations can be costly and very time consuming (similar to data connectivity). By offering the ability to combine power delivery over the same copper lines used for high-speed data, we believe our solutions are solving yet another important challenge in connecting hard-to-reach locations.
By offering the ability to combine power delivery over the same copper lines used for high-speed data, we believe our solutions are solving yet another important challenge in connecting hard-to-reach locations.
While we believe that our existing environmental control procedures are adequate, we will continue to evaluate and update our procedures as needed to address new or changing aspects of environmental matters. 13 Intellectual Property We rely on a combination of trade secrets, patent, trademark and copyright laws in the United States, as well as intellectual property licenses and other contractual rights (including confidentiality procedures, contractual provisions, and non-disclosure and assignment-of-intellectual property agreements with our employees, independent contractors, consultants and companies with which we conduct business) to establish and protect our A.I. technology, intellectual property and proprietary rights, trade secrets, databases, and our brand.
Intellectual Property We rely on a combination of trade secrets, patent, trademark and copyright laws in the United States, as well as intellectual property licenses and other contractual rights (including confidentiality procedures, contractual provisions, and non-disclosure and assignment-of-intellectual property agreements with our employees, independent contractors, consultants and companies with which we conduct business) to establish and protect our A.I. technology, intellectual property and proprietary rights, trade secrets, databases, and our brand.
We believe the following competitive attributes are necessary for our solutions to successfully compete in IoT networking market: ● the performance and reliability of our solutions; ● cost of deployment and return on investment in terms of cost savings; ● sophistication, novel and innovative intellectual property and technology, and functionality of our offerings; ● cross-platform operability; ● security; ● ease of implementation and use of service; ● high quality customer support; and ● price.
We believe the following competitive attributes are necessary for our solutions to successfully compete in IoT and Telecom networking markets, and likewise we believe that we are providing leading products in all the categories below: ● the performance and reliability of our solutions over any wireline (non-wireless) medium; Rapid deployment/implementation ● cost of deployment and return on investment in terms of cost savings; ● sophistication, novel and innovative intellectual property and technology, and functionality of our offerings; ● cross-platform operability; ● security; ● ease of implementation and use of service; ● management capabilities; ● high-quality customer support; and ● price.
Without accounting for any potential patent term adjustments or extensions or other forms of exclusivity with respect to our U.S. issued patents, four expire between 2023 and 2024, 14 expire between 2025 and 2029, and ten expire between 2030 and 2038. Any patent issuing from the pending U.S. application will begin to expire in 2037.
Without accounting for any potential patent term adjustments or extensions or other forms of exclusivity with respect to our U.S. issued patents, 4 expire between 2024 and 2026, 5 expire between 2027 and 2030, and 8 expire between 2031 and 2038. Any patent issuing from the pending WIPO patent application will begin to expire in 2041.
This allows for one Actelis platform to often replace multiple other platforms available in the market, allowing for space-saving installation, energy conservation (which we believe results in a greener network), and making network planning easier for our customers. We aim at having our products installed and help accelerate deployment of wire-area IoT projects and applications everywhere.
This allows for one Actelis platform to often replace multiple other platforms available in the market, allowing for space-saving installation, energy conservation (which we believe results in a greener network), and making network planning easier for our customers.
Our operations are focused on our fast-growing IoT business, while maintaining our commitment to our existing Telco customers. 6 Our Competitive Advantage We have invested heavily and over more than 10 years in the development of copper technologies and hybrid fiber-copper communication systems to create a solution that enables high-speed communication over real-life networks of mixed media, securely, reliably, and with Gigabit-grade resilience.
Our Competitive Advantage We have invested heavily and over more than 10 years in the development of copper technologies and hybrid-fiber communication systems to create a solution that enables high-speed communication over real-life networks of mixed media, securely, reliably, and with Gigabit-grade resilience. Copper and coax lines are readily available in billions of locations.
We aim to continue developing our technology to include more system-wide security and further hybridity across all types of infrastructure. We will also seek to include cutting-edge computing capabilities to serve all connectivity needs for our IoT customers, in an effective and easily deployable way, while maintaining our commitment to serve our existing Telco customers.
We will also seek to include cutting-edge computing capabilities to serve all connectivity needs for our IoT customers, in an effective and easily deployable way, while maintaining our commitment to serve our existing Telco customers.
However, the remaining 30% of locations were hard-to-reach with new fiber optics, and accordingly may require boring or trenching to reach IoT sensors or camera locations. Getting fiber to those 30% of hard-to-reach would require potentially connecting over obstacles, roads, long distances, and may also require obtaining the right of way and permits for extensive civil works.
Getting fiber to those 30% of hard-to-reach would require potentially connecting over obstacles, roads, long distances, and may also require obtaining the right of way and permits for extensive civil works.
We have funded our operations to date through equity financing and we had cash on hand (including short term deposits and restricted cash) of $6 million, and long-term deposits and restricted cash of $2.4 million, as of December 31, 2022. We continue to invest in sales and marketing resources to fuel our growth.
We have funded our operations to date through equity financing and we had cash on hand (including short term bank deposits and restricted cash equivalents ) of $2.4 million and long-term restricted cash and cash equivalents and restricted bank deposits of $3.4 million as of December 31, 2023.
We also are investing in lead-generation activities through third-parties who specialize in this practice. Expansion of Multi-year deals Over the past years, we entered into several large multi-year contracts with ITS, military, airports, and more that will generate more predictable sales for the next several years.
Expansion of Multi-year deals Over the past years, we entered into several large multi-year contracts with ITS, military, airports, and more that will generate more predictable sales for the next several years.
We have registered “Actelis Networks” as a service trademark in the United States, and we are the registered holder of the domain name Actelis.com that includes “Actelis Networks, Inc.” We also have 20 registered patents in the United States; 5 registered patents in Europe, 1 registered patent in Mexico, and one pending patent application at WIPO, all of which in the general area of high-speed carrier class Ethernet service and transport over bonded VDSL2, G.SHDSL as well as Fiber covering various aspects of our technology.
We also have 17 registered patents in the United States; 5 registered patents in Europe, 1 registered patent in Mexico, 1 registered patent in Indonesia, and 1 WIPO patent application, all of which in the general area of high-speed carrier class Ethernet service and transport over bonded VDSL2, G.SHDSL as well as Fiber covering various aspects of our technology.
Human Capital Resources As of December 31, 2022, we had approximately 48 employees and contractors, of which 44 were full-time employees, including 17 in sales and marketing, 24 in research development, engineering, and operations and 7 in general and administration. We have approximately 33 employees and contractors in Israel, 12 in the U.S., 2 in Europe and 1 in Asia.
Human Capital Resources As of December 31, 2023, we had approximately 49 employees and contractors, of which 43 were full-time employees, including 19 in sales and marketing, 22 in research development, engineering, and operations and 8 in general and administration. We have approximately 34 employees and contractors in Israel, 11 in the U.S., 3 in Europe and 1 in Asia.
We believe that combining communication and power over the same existing lines is particularly important to help connect many fifth generation, or 5G, small cells and Wi-Fi base stations, as high cost of connectivity and power is often slowing their deployment.
We believe that combining communication and power over the same existing lines is particularly important to help connect many fifth generation, or 5G, small cells and Wi-Fi base stations, as high cost of connectivity and power is often slowing their deployment. 1 Since our inception, our business was focused on serving telecommunication service providers, also known as Telcos, to provide connectivity for enterprises and residential customers.
Since the breakout of COVID19, as the world is experiencing shortages of electronic components, we have assisted our manufacturers to acquire components that are harder to find. We recently secured components which were announced to be end of life by their manufacturers in order to ensure adequate quantities of future product shipments.
For example, since the breakout of COVID-19, as the world is experiencing shortages of electronic components, we have assisted our manufacturers in acquiring components that are harder to find. We also secure components as have been designated to be the close to end of life by their manufacturers to ensure adequate quantities of future product shipments.
The types of applications in this vertical that require communication include road cameras, lane management systems, and road signs. Rail Rail systems include customers who own and operate traditional inter-city rail lines as well as light rails. Some applications requiring communication in this vertical are central train control systems, rail signals, safety cameras and alert sensors, and rail station communication.
Rail Rail systems include customers who own and operate traditional inter-city rail lines as well as light rails. Some applications requiring communication in this vertical are central train control systems, rail signals, safety cameras and alert sensors, and rail station communication. We currently have projects within this vertical in North America, Europe, and Asia Pacific.
In 2023, we expect to introduce new product offering, some of which could serve both the IoT markets and our Telco customers. 1 We derive a significant portion of our revenue from our existing Telco customers.
Our operations are focused on our fast-growing IoT business, while maintaining our commitment to our existing Telco customers. In 2023, we introduced new product offering, some of which could serve both the IoT markets and our Telco customers. We derive a growing portion of our revenue from our existing and new IoT customers.
We believe our strong brand name of high-quality communication solutions, as well as the credibility we gain with esteemed customers such as the U.S. DoD, enhances our ability to provide our services. For example, MetaLight 600 Series was approved for deployment by U.S. DoD and is on the Approved Product List (APL) since 2019.
We believe our strong brand name of high-quality communication solutions, as well as the credibility we gain with esteemed customers such as the U.S. DoD, enhances our ability to provide our products and services.
We intend to expand this strategy by investing in sales and marketing presence to extend the length these contracts and add many others. Expansion into Cyber Security, Recurring Revenue Model Cyber security is becoming increasingly more important for critical IoT infrastructure.
We intend to expand this strategy by investing in sales and marketing presence to extend the length these contracts and add many others. Expansion into Cybersecurity, Recurring Revenue Model Cybersecurity is essential for IoT infrastructure. Such security must be addressed at the data traffic, switching, and network management level.
Such support service is sold as a standalone contract or in combination with EMS management software and is offered for a term, usually 12 months with a renewal option. 9 Additionally, our customers can purchase software support service which allow them to receive some additional features or free upgrades. Such support service is sold as a separate contract.
Additionally, our customers can purchase software support service which allow them to receive some additional features or free upgrades. Such support service is sold as a separate contract.
Furthermore, we have acquired the necessary software protocol and are in the process of certifying our product lines for Federal Intelligence Protocol Standards (FIPS). We are exploring directions to provide software services to our customers that would allow them to flexibly safeguard their critical networks, and intelligently isolate and protect from bad actors attacking their networks.
We are exploring directions to provide software services to our customers that would allow them to flexibly safeguard their critical networks, and intelligently isolate and protect from bad actors attacking their networks.
Copper lines are readily available in billions of locations. They are often buried in the ground or hanging from telephone poles, in bundles of tens or hundreds of wires. Copper by itself was never designed for high-speed communication.
They are often buried in the ground, running in the walls of buildings or hanging from telephone poles, in bundles of tens or hundreds of wires. 7 Copper wires were never designed for long-reach, secure, high-speed communication.
Power can be provided from the communication line ● Ability to provide precise synchronization over the communication lines to base stations ● Routing functions ● Support for spectrally-friendly reach extenders up to 100Km with minimal impact on other communication lines ● Automated software tools for installation and management (including automated line calibration and configuration recognition during installation to avoid manual work, advanced management systems that allow remote troubleshooting of any line connected to the system to save on operation and management time) We believe that the combination of these advantages provide our customers with a highly cost-effective solution to quickly obtain IoT connectivity anywhere in their network. 7 We believe that our hybrid-fiber-copper solutions have a significant competitive advantage in several layers: (a) copper performance (speed, reach, link stability and data security); (b) seamless fiber-copper integration and end-to-end data encryption; (c) overall system cyber-hardened design; (d) versatile, compact and feature-dense products with a good fit to the vast majority of applications; (e) very high product and transmission reliability; automatic configuration tools and advanced management of every element in the field; and (f) highly cost-effective when compared to alternatives.
Power can be provided from the communication line ● Ability to provide precise synchronization over the communication lines to base stations ● Routing functions ● Support for spectrally-friendly reach extenders up to 100Km with minimal impact on other communication lines ● Automated software tools for installation and management (including automated line calibration and configuration recognition during installation to avoid manual work, advanced management systems that allow remote troubleshooting of any line connected to the system to save on operation and management time) We believe that the combination of these advantages provides our customers with a highly cost-effective solution to quickly obtain IoT connectivity anywhere in their network.
Our employee agreements also require relevant employees to assign to us all rights to any inventions made or conceived during their employment with us in accordance with applicable law. In addition, we have a policy of requiring individuals and entities with which we discuss potential business relationships to sign non-disclosure agreements.
For instance, we have a policy of requiring all employees and consultants to execute confidentiality agreements upon the commencement of an employment or consulting relationship with us. Our employee agreements also require relevant employees to assign to us all rights to any inventions made or conceived during their employment with us in accordance with applicable law.
The types of applications within this vertical that require communication are sub-station monitoring, oil and gas pipeline and refineries, electric and water flow monitoring, and perimeter security. We have projects within this vertical in North America and Europe. Smart City We believe the goal of nearly any city worldwide is to become smarter and better serve its residents and visitors.
Energy and Water Energy and water include customers such as electric utilities, oil companies and water utilities. The types of applications within this vertical that require communication are sub-station monitoring, oil and gas pipeline and refineries, electric and water flow monitoring, and perimeter security. We have projects within this vertical in North America and Europe.
United States’ Bipartisan Infrastructure Law In November 2021, President Biden signed the Bipartisan Infrastructure Law to invest approximately $1.2 trillion to significantly upgrade the United States’ infrastructure.
We began working on such capabilities in 2023, and expect applications to be released starting late 2024. United States’ Bipartisan Infrastructure Law In November 2021, President Biden signed the Bipartisan Infrastructure Law to invest approximately $1.2 trillion to significantly upgrade the United States’ infrastructure.
In order to achieve the right level of global coverage, we are expanding our network of partners and representatives and aim increasingly at partnering with larger numbers of companies with global presence.
In order to achieve the right level of global coverage, we continue to expand our network of partners and representatives, as well as reputable advisors, and aim increasingly at partnering with larger numbers of companies with global presence. These can be system-integrators, value-added resellers, contractors, distributors, and consultants.
Lastly, our agreements with clients include confidentiality and non-disclosure provisions. Corporate Information We were incorporated in Delaware in 1998.
In addition, we have a policy of requiring individuals and entities with which we discuss potential business relationships to sign non-disclosure agreements. Lastly, our agreements with clients include confidentiality and non-disclosure provisions. Corporate Information We were incorporated in Delaware in 1998.
We are investing in growing our sales, channel management and support teams, and dedicate resources which specialize in specific verticals in each of the theaters. In August 2022, we hired a new VP of Marketing who is executing campaigns through social media, industry shows and conferences and other online means.
We are investing in growing our sales, channel management and support teams, and dedicate resources which specialize in specific verticals in each of the theaters. In July 2023, we hired a new SVP of Sales, Americas who is executing campaigns our sales strategy in the United States, Canada, Central and South America.
Smart city customers include such municipalities. The types of applications in this vertical requiring communication include security cameras, parking management, energy and water management, waste management, digital signs, and provision of Wi-Fi connectivity. We currently have projects in more than 100 cities, mostly in North America and Europe.
Smart City We believe the goal of nearly any city worldwide is to become smarter and better serve its residents and visitors. Smart city customers include such municipalities. The types of applications in this vertical requiring communication include security cameras, parking management, energy and water management, waste management, digital signs, and provision of Wi-Fi connectivity.
We are subject to the informational requirements of the Exchange Act and file or furnish reports, proxy statements, and other information with the SEC. Such reports and other information filed by us with the SEC are available free of charge on the SEC’s website at www.sec.gov. or on our website at https://actelis.com/when such reports are available on the SEC’s website.
We are subject to the informational requirements of the Exchange Act and file or furnish reports, proxy statements, and other information with the SEC.
With respect to our European patents, two European patents are expected to expire between 2023 and 2024, two European patents are expected to expire between 2025 and 2029, and one European patent is expected to expire between 2030 and 2037. Our Mexican patent is expected to expire in 2026.
With respect to our European patents, 3 European patents are expected to expire between 2024 and 2026, and 2 European patent is expected to expire between 2027 and 2038.
We operate a vertical based marketing plan where we dedicate tailored solutions and individual resources to each specific vertical. Our verticals include Intelligent Traffic Systems (ITS), rail, smart city, Telco, utilities, federal and military. ITS ITS include customers who manage road systems such as departments of traffic on either the municipality, county, state, or national level.
Our verticals include Intelligent Traffic Systems (ITS), rail, smart city, Telecom, utilities, federal and military. ITS ITS include customers who manage road systems such as departments of traffic on either the municipality, county, state, or national level. The types of applications in this vertical that require communication include road cameras, lane management systems, and road signs.
In 2022, we started delivering to our new airport integration customer, who is a worldwide market-leader in airport operation technology, with which we signed an agreement to provide our solutions to hundreds of airports in 39 countries. Energy and Water Energy and water include customers such as electric utilities, oil companies and water utilities.
The types of applications within this vertical requiring communication are airport security, baggage management, and airport Wi-Fi. Since 2022, we are delivering to our airport integration customer, who is a worldwide market-leader in airport operation technology, with which we signed an agreement to provide our solutions to hundreds of airports in 39 countries.
For example, in one of the projects where our solutions are deployed, we found that 70% of locations are easy-to-reach with new fiber optic installation. Connectivity for such easy-to-reach locations may, as we believe, average $26,000 per mile for new fiber laid on poles, and can take between days to weeks to connect.
Connectivity for such easy-to-reach locations may, as we believe, average $26,000 per mile for new fiber laid on poles, and can take between days to weeks to connect. However, the remaining 30% of locations were hard-to-reach with new fiber optics, and accordingly may require boring or trenching to reach IoT sensors or camera locations.
For example, during 2022, we were selected by Norseman Defense Technologies as an authorized sales partner to provide our solutions to all branches of the US Military and Government. The types of applications within this vertical that requiring communication include radars, perimeter security systems, energy systems, offices, laboratories and residences.
Federal and Military Our current and future federal and military federal aviation authorities, US military, Air Force and Navy bases, and other government and military facilities. For example, during 2022, we were selected by Norseman Defense Technologies as an authorized sales partner to provide our solutions to all branches of the US Military and Government.
We compete with a number of companies in the markets we serve. Our key competitors include Moxa Technologies, ADTRAN, Inc., FlexDSL Telecommunications AG, EtherWAN Systems, Inc. and Belden Inc.
While our hybrid-fiber offerings are unique in our opinion, providing the highest value to network operators, our customer may still elect to implement their networks in other ways. 11 As such we compete with a number of companies in the markets we serve. Our key competitors include Moxa Technologies, FlexDSL Telecommunications AG, EtherWAN Systems, Inc. and Belden Inc.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeRisks Related to Protecting Our Technology and Intellectual Property ● Claims by others that we infringe their intellectual property could force us to incur significant costs or revise the way we conduct our business. ● Our patents and proprietary technology may be challenged or disputed. ● Any failure to protect our intellectual property rights could impair our ability to protect our proprietary technology and our brand. ● The lives of our patents may not be sufficient to effectively protect our products and business. 16 Risks Related to Managing Our Business Operations in Israel ● Potential political, economic, and military instability in the State of Israel, where our research and development facilities are located, may adversely affect our results of operations. ● Actelis Israel received Israeli government grants for certain of our research and development activities, the terms of which require us to pay royalties and satisfy specified conditions in order to manufacture products and transfer technologies outside of Israel.
Biggest changeOur business, financial condition and results of operations may be materially adversely affected by any negative impact on the global economy and capital markets resulting from the conflict in Ukraine and Israel or any other geopolitical tensions. 17 Risks Related to Protecting Our Technology and Intellectual Property ● Claims by others that we infringe their intellectual property could force us to incur significant costs or revise the way we conduct our business. ● Our patents and proprietary technology may be challenged or disputed. ● Any failure to protect our intellectual property rights could impair our ability to protect our proprietary technology and our brand. ● The lives of our patents may not be sufficient to effectively protect our products and business.
Factors that may cause fluctuations in our quarterly financial results include: ● our ability to attract new customers and increase revenue from our existing customers; ● the loss of existing customers; ● customer satisfaction with our products, solutions, platform capabilities and customer support; ● mergers and acquisitions or other factors resulting in the consolidation of our customer base; ● mix of our revenue; ● our ability to gain new partners and retain existing partners; ● fluctuations in share-based compensation expense; ● decisions by potential customers to purchase competing offerings or develop in-house technologies and solutions as alternatives to our offerings; 23 ● changes in the spending patterns of our customers; ● the amount and timing of operating expenses related to the maintenance and expansion of our business and operations, including investments in research and development, sales and marketing, and general and administrative resources; ● network outages; ● developments or disputes concerning our intellectual property or proprietary rights, our products and services, or third-party intellectual property or proprietary rights; ● negative publicity about our company, our offerings or our partners, including as a result of actual or perceived breaches of, or failures relating to, privacy, data protection or data security; ● the timing of expenses related to the development or acquisition of technologies or businesses and potential future charges for impairment of goodwill from acquired companies; ● general economic, industry, and market conditions; ● the impact of the ongoing COVID-19 pandemic, or any other pandemic, epidemic, outbreak of infectious disease or other global health crises on our business, the businesses of our customers and partners and general economic conditions; ● the impact of political uncertainty or unrest; ● changes in our pricing policies or those of our competitors; ● fluctuations in the growth rate of the markets that our offerings address; ● seasonality in the underlying businesses of our customers, including budgeting cycles, purchasing practices and usage patterns; ● the business strengths or weakness of our customers; ● our ability to collect timely on invoices or receivables; ● the cost and potential outcomes of future litigation or other disputes; ● future accounting pronouncements or changes in our accounting policies; ● our overall effective tax rate, including impacts caused by any reorganization in our corporate tax structure and any new legislation or regulatory developments; ● our ability to successfully expand our business in the United States and internationally; ● fluctuations in foreign currency exchange rates; and ● the timing and success of new products and solutions introduced by us or our competitors, or any other change in the competitive dynamics of our industry, including consolidation among competitors, customers or partners.
Factors that may cause fluctuations in our quarterly financial results include: ● our ability to attract new customers and increase revenue from our existing customers; ● the loss of existing customers; ● customer satisfaction with our products, solutions, platform capabilities and customer support; ● mergers and acquisitions or other factors resulting in the consolidation of our customer base; ● mix of our revenue; ● our ability to gain new partners and retain existing partners; ● fluctuations in share-based compensation expense; ● decisions by potential customers to purchase competing offerings or develop in-house technologies and solutions as alternatives to our offerings; ● changes in the spending patterns of our customers; ● the amount and timing of operating expenses related to the maintenance and expansion of our business and operations, including investments in research and development, sales and marketing, and general and administrative resources; ● network outages; ● developments or disputes concerning our intellectual property or proprietary rights, our products and services, or third-party intellectual property or proprietary rights; ● negative publicity about our company, our offerings or our partners, including as a result of actual or perceived breaches of, or failures relating to, privacy, data protection or data security; ● the timing of expenses related to the development or acquisition of technologies or businesses and potential future charges for impairment of goodwill from acquired companies; ● general economic, industry, and market conditions; ● the impact of the ongoing COVID-19 pandemic, or any other pandemic, epidemic, outbreak of infectious disease or other global health crises on our business, the businesses of our customers and partners and general economic conditions; ● the impact of political uncertainty or unrest; ● changes in our pricing policies or those of our competitors; ● fluctuations in the growth rate of the markets that our offerings address; 26 ● seasonality in the underlying businesses of our customers, including budgeting cycles, purchasing practices and usage patterns; ● the business strengths or weakness of our customers; ● our ability to collect timely on invoices or receivables; ● the cost and potential outcomes of future litigation or other disputes; ● future accounting pronouncements or changes in our accounting policies; ● our overall effective tax rate, including impacts caused by any reorganization in our corporate tax structure and any new legislation or regulatory developments; ● our ability to successfully expand our business in the United States and internationally; ● fluctuations in foreign currency exchange rates; and ● the timing and success of new products and solutions introduced by us or our competitors, or any other change in the competitive dynamics of our industry, including consolidation among competitors, customers or partners.
Any such claims or lawsuit could: ● be time-consuming and expensive to defend, whether meritorious or not; ● require us to stop providing products or services that use the technology that infringes the other party’s intellectual property; ● divert the attention of our technical and managerial resources; ● require us to enter into royalty or licensing agreements with third-parties, which may not be available on terms that we deem acceptable; ● prevent us from operating all or a portion of our business or force us to redesign our products, services or technology, which could be difficult and expensive and may make the performance or value of our product or service offerings less attractive; ● subject us to significant liability for damages or result in significant settlement payments; or ● require us to indemnify our customers.
Any such claims or lawsuit could: ● be time-consuming and expensive to defend, whether meritorious or not; ● require us to stop providing products or services that use the technology that infringes the other party’s intellectual property; 29 ● divert the attention of our technical and managerial resources; ● require us to enter into royalty or licensing agreements with third-parties, which may not be available on terms that we deem acceptable; ● prevent us from operating all or a portion of our business or force us to redesign our products, services or technology, which could be difficult and expensive and may make the performance or value of our product or service offerings less attractive; ● subject us to significant liability for damages or result in significant settlement payments; or ● require us to indemnify our customers.
We are an “emerging growth company,” as defined in the JOBS Act, and we have elected to take advantage of certain exemptions and relief from various reporting requirements that are applicable to other public companies that are not “emerging growth companies.” These provisions include, but are not limited to: requiring only two years of audited financial statements and only two years of related selected financial data and management’s discussion and analysis of financial condition and results of operations disclosures; being exempt from compliance with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act; being exempt from any rules that could be adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotations or a supplement to the auditor’s report on financial statements; being subject to reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements; and not being required to hold nonbinding advisory votes on executive compensation or on any golden parachute payments not previously approved. 33 In addition, while we are an “emerging growth company,” we will not be required to comply with any new financial accounting standard until such standard is generally applicable to private companies.
We are an “emerging growth company,” as defined in the JOBS Act, and we have elected to take advantage of certain exemptions and relief from various reporting requirements that are applicable to other public companies that are not “emerging growth companies.” These provisions include, but are not limited to: requiring only two years of audited financial statements and only two years of related selected financial data and management’s discussion and analysis of financial condition and results of operations disclosures; being exempt from compliance with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act; being exempt from any rules that could be adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotations or a supplement to the auditor’s report on financial statements; being subject to reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements; and not being required to hold nonbinding advisory votes on executive compensation or on any golden parachute payments not previously approved. 35 In addition, while we are an “emerging growth company,” we will not be required to comply with any new financial accounting standard until such standard is generally applicable to private companies.
Any of the foregoing could disrupt our business and have a material adverse effect on our business, operating results and financial condition. 27 Our patents and proprietary technology may be challenged or disputed. We hold certain patent and trade secret rights relating to various aspects of our technologies, which are of material importance to the Company and its future prospects.
Any of the foregoing could disrupt our business and have a material adverse effect on our business, operating results and financial condition. Our patents and proprietary technology may be challenged or disputed. We hold certain patent and trade secret rights relating to various aspects of our technologies, which are of material importance to the Company and its future prospects.
Any failure to increase our revenues or to manage our costs as we invest in our business would prevent us from achieving or maintaining profitability. 17 There is no guaranty that we will be able to generate the revenue necessary to support our cost structure or obtain the level of financing necessary for our operations.
Any failure to increase our revenues or to manage our costs as we invest in our business would prevent us from achieving or maintaining profitability. There is no guaranty that we will be able to generate the revenue necessary to support our cost structure or obtain the level of financing necessary for our operations.
Our sales and marketing efforts to drive growth may be ineffective as we try to win new deals either directly with end-user customers, or indirectly through business partners, distributors, system integrators or value-add resellers. These ineffective efforts may cause us to miss our planned growth and harm our financial results.
We may have ineffective sales and marketing efforts. Our sales and marketing efforts to drive growth may be ineffective as we try to win new deals either directly with end-user customers, or indirectly through business partners, distributors, system integrators or value-add resellers. These ineffective efforts may cause us to miss our planned growth and harm our financial results.
Our gross margins may deteriorate as a result of either reductions of customers price points, increases in product component and manufacturing costs, or unfavorable changes in the mix between more and less profitable customers and/or products. Changes in the price and availability of our raw materials and shipping could be detrimental to our profitability.
Our gross margins may deteriorate as a result of either reductions of customers price points, increases in product component and manufacturing costs, or unfavorable changes in the mix between more and less profitable customers and/or products. 23 Changes in the price and availability of our raw materials and shipping could be detrimental to our profitability.
We cannot assure you that we will be able to compete successfully against any of these competitors. Our failure to compete successfully with our competitors could harm our business. We are dependent on skilled human capital. Our ability to innovate and execute its business plans is dependent on the ability to hire, replace, and train skilled personnel.
We cannot assure you that we will be able to compete successfully against any of these competitors. Our failure to compete successfully with our competitors could harm our business. 25 We are dependent on skilled human capital. Our ability to innovate and execute its business plans is dependent on the ability to hire, replace, and train skilled personnel.
A significant portion of the world’s semiconductor manufacturing is in Taiwan, and similar geopolitical tensions there could create further supply chain disruptions, which could result in further delays for our products’ components. The world’s largest semiconductor chip manufacturer is located in Taiwan and a large part of equipment and materials, is manufactured in, and imported from, Taiwan.
A significant portion of the world’s semiconductor manufacturing is in Taiwan, and similar geopolitical tensions there could create further supply chain disruptions, which could result in further delays for our products’ components. 27 The world’s largest semiconductor chip manufacturer is located in Taiwan and a large part of equipment and materials, is manufactured in, and imported from, Taiwan.
Those cyber-attack attempts may take advantage of vulnerabilities of our products within the networks, vulnerabilities that may be known or unknown to us. Our products and services include information systems and digital data of various types, including data kept by our employees, suppliers, and customers (and their own customers).
Those cyber-attack attempts may take advantage of vulnerabilities of our products within the networks, vulnerabilities that may be known or unknown to us. 24 Our products and services include information systems and digital data of various types, including data kept by our employees, suppliers, and customers (and their own customers).
Our business, financial condition and results of operations may be materially adversely affected by any negative impact on the global economy and capital markets resulting from the conflict in Ukraine or any other geopolitical tensions.
Our business, financial condition and results of operations may be materially adversely affected by any negative impact on the global economy and capital markets resulting from the conflict in Ukraine and Israel or any other geopolitical tensions.
If we do not have sufficient patent life to protect our products, our business and results of operations will be adversely affected. We may not be able to adequately defend against piracy of intellectual property in foreign jurisdictions.
If we do not have sufficient patent life to protect our products, our business and results of operations will be adversely affected. 31 We may not be able to adequately defend against piracy of intellectual property in foreign jurisdictions.
Parties with whom we do business may sometimes decline to travel to Israel during periods of heightened unrest or tension, forcing us to make alternative arrangements when necessary in order to meet our business partners face to face.
Parties with whom we do business may decline to travel to Israel during periods of heightened unrest or tension, forcing us to make alternative arrangements when necessary in order to meet our business partners face to face.
The current war in Ukraine, and geopolitical events stemming from such conflicts, could cause consumer confidence and spending to decrease or result in increased volatility in the United States and worldwide financial markets and economy.
The current war in Ukraine and Israel, and geopolitical events stemming from such conflicts, could cause consumer confidence and spending to decrease or result in increased volatility in the United States and worldwide financial markets and economy.
If we are not able to respond to and manage the impact of such events effectively, our business will be affected. Our performance is affected by general economic and political conditions and taxation policies .
If we are not able to respond to and manage the impact of such events effectively, our business will be affected. 28 Our performance is affected by general economic and political conditions and taxation policies .
Our failure to secure, protect, and enforce our intellectual property rights could adversely affect our brand and our business. 28 The lives of our patents may not be sufficient to effectively protect our products and business. Patents have a limited lifespan.
Our failure to secure, protect, and enforce our intellectual property rights could adversely affect our brand and our business. The lives of our patents may not be sufficient to effectively protect our products and business. Patents have a limited lifespan.
We are susceptible to problems, and have encountered problems in the past, in connection with procurement, decreasing quality, reliability, and protectability. ● Demand for our products and solutions may not grow or may decline. ● Our gross margins may not increase or may deteriorate. 15 ● Changes in the price and availability of our raw materials and shipping could be detrimental to our profitability. ● Expanding our operations and marketing efforts to meet expected growth may impact profitability if actual growth is less than expected. ● If our internal Company cyber-security measures are breached or fail and unauthorized access is obtained to our IT environment, we may incur significant losses of data, which we may not be able to recover and may experience a delay in our ability to conduct our day-to-day business. ● We provide cyber security features as part of our products that may not completely prevent information security breaches, and our products are installed in live customer environments and may be compromised by cyber-attacks and damage customer assets. ● We depend on key information systems and third-party service providers. ● We depend on our management team and other key employees, and the loss of one or more of these employees or an inability to attract and retain highly skilled employees could adversely affect our business. ● We may face the effects of increased competition and rapid technological changes. ● Our results of operations are likely to fluctuate from quarter to quarter and year to year, which could adversely affect the trading price of our common stock. ● The loss of one or more of our significant customers, or any other reduction in the amount of revenue we derive from any such customer, would adversely affect our business, financial condition, results of operations and growth prospects. ● We are currently operating in a period of economic uncertainty and capital markets disruption, which has been significantly impacted by geopolitical instability due to the ongoing military conflict between Russia and Ukraine.
We are susceptible to problems, and have encountered problems in the past, in connection with procurement, decreasing quality, reliability, and protectability. ● Demand for our products and solutions may not grow or may decline. ● Our gross margins may not increase or may deteriorate. ● Changes in the price and availability of our raw materials and shipping could be detrimental to our profitability. ● Expanding our operations and marketing efforts to meet expected growth may impact profitability if actual growth is less than expected. ● If our internal Company cyber-security measures are breached or fail and unauthorized access is obtained to our IT environment, we may incur significant losses of data, which we may not be able to recover and may experience a delay in our ability to conduct our day-to-day business. ● We provide cyber security features as part of our products that may not completely prevent information security breaches, and our products are installed in live customer environments and may be compromised by cyber-attacks and damage customer assets. ● We depend on key information systems and third-party service providers. ● We depend on our management team and other key employees, and the loss of one or more of these employees or an inability to attract and retain highly skilled employees could adversely affect our business. ● We may face the effects of increased competition and rapid technological changes. ● Our results of operations are likely to fluctuate from quarter to quarter and year to year, which could adversely affect the trading price of our common stock. ● The loss of one or more of our significant customers, or any other reduction in the amount of revenue we derive from any such customer, would adversely affect our business, financial condition, results of operations and growth prospects. ● We are currently operating in a period of economic uncertainty and capital markets disruption, which has been significantly impacted by geopolitical instability due to the ongoing military conflicts between Russia and Ukraine and between Israel and Hamas and Hezbollah.
This is often referred to as a “short squeeze.” A short squeeze could lead to volatile price movements in our common stock that are not directly correlated to the performance or prospects of our common stock and once investors purchase the shares of common stock necessary to cover their short position the price of our common stock may decline. 37 If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research, about our business, our stock price and trading volume could decline.
This is often referred to as a “short squeeze.” A short squeeze could lead to volatile price movements in our common stock that are not directly correlated to the performance or prospects of our common stock and once investors purchase the shares of common stock necessary to cover their short position the price of our common stock may decline. 39 If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research, about our business, our stock price and trading volume could decline.
We also expect our operating expenses to increase in the future as we continue to invest for our future growth, including expanding our research and development function to drive further development of our platform, expanding our sales and marketing activities, developing the functionality to expand into adjacent markets, and reaching customers in new geographic locations, which will negatively affect our operating results if our total revenues do not increase.
We may also increase our operating expenses in the future as we continue to invest for our future growth, including expanding our research and development function to drive further development of our platform, expanding our sales and marketing activities, developing the functionality to expand into adjacent markets, and reaching customers in new geographic locations, which will negatively affect our operating results if our total revenues do not increase.
Our wholly owned subsidiary, Actelis Israel, which manages our research and development efforts, has been financed in part through royalty-bearing grants in an aggregate amount of approximately $14 million (plus accrued interest), received from the Israeli Innovation Authority (formerly known as the Office of the Chief Scientist of the Israeli Ministry of Economy), or the IIA, as of December 31, 2022.
Our wholly owned subsidiary, Actelis Israel, which manages our research and development efforts, has been financed in part through royalty-bearing grants in an aggregate amount of approximately $14 million (plus accrued interest), received from the Israeli Innovation Authority (formerly known as the Office of the Chief Scientist of the Israeli Ministry of Economy), or the IIA, as of December 31, 2023.
Furthermore, the consideration available to our shareholders in a transaction involving the transfer outside of Israel of technology or know-how developed with IIA funding (such as a merger or similar transaction) may be reduced by any amounts that we are required to pay to the IIA. 31 There are costs and difficulties inherent in managing cross-border business operations.
Furthermore, the consideration available to our shareholders in a transaction involving the transfer outside of Israel of technology or know-how developed with IIA funding (such as a merger or similar transaction) may be reduced by any amounts that we are required to pay to the IIA. 33 There are costs and difficulties inherent in managing cross-border business operations.
Sales of substantial amounts of our common stock in the public market after the completion of the IPO, or the perception that such sales could occur, could adversely affect the market price of our common stock and could materially impair our ability to raise capital through offerings of our common stock. 36 The market price of our common stock may be volatile and may decline regardless of our operating performance, and you may lose all or part of your investments.
Sales of substantial amounts of our common stock in the public market after the completion of the IPO, or the perception that such sales could occur, could adversely affect the market price of our common stock and could materially impair our ability to raise capital through offerings of our common stock. 38 The market price of our common stock may be volatile and may decline regardless of our operating performance, and you may lose all or part of your investments.
In addition, changes in tax and trade laws, treaties or regulations, or their interpretation or enforcement, have become more unpredictable and may become more stringent, which could materially adversely affect our tax position. 32 Forecasting our estimated annual effective tax rate is complex and subject to uncertainty, and there may be material differences between our forecasted and actual effective tax rate.
In addition, changes in tax and trade laws, treaties or regulations, or their interpretation or enforcement, have become more unpredictable and may become more stringent, which could materially adversely affect our tax position. 34 Forecasting our estimated annual effective tax rate is complex and subject to uncertainty, and there may be material differences between our forecasted and actual effective tax rate.
Accordingly, because of the inherent limitations in our control system, misstatements or insufficient disclosures due to error or fraud may occur and not be detected. 35 An active trading market may not develop for our securities. Our common stock is listed on the Nasdaq Capital Market.
Accordingly, because of the inherent limitations in our control system, misstatements or insufficient disclosures due to error or fraud may occur and not be detected. 37 An active trading market may not develop for our securities. Our common stock is listed on the Nasdaq Capital Market.
Furthermore, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. 38 Stockholders cannot waive compliance with the federal securities laws and the rules and regulations thereunder.
Furthermore, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. 40 Stockholders cannot waive compliance with the federal securities laws and the rules and regulations thereunder.
You should carefully consider all of the risks described more fully in the section titled “Risk Factors” in this Annual Report, before deciding to invest in our common stock. If any of these risks actually occurs, our business, financial condition and results of operations would likely be materially adversely affected.
You should carefully consider all of the risks described more fully in the section titled “Risk Factors” in this Annual Report on page 19, before deciding to invest in our common stock. If any of these risks actually occurs, our business, financial condition and results of operations would likely be materially adversely affected.
Several of these potential competitors may be further along in the process of product development and also operate large, company-funded research and development programs. As a result, our competitors may develop more competitive or affordable products, or achieve earlier patent protection or product commercialization than we are able to achieve.
Several of these potential competitors may be further along in the process of product development and also operate large, company-funded research and development programs. As a result, our competitors may develop more competitive or affordable products, or achieve earlier patent protection or product commercialization than we are able to achieve. Competitive products may render any products that we develop obsolete.
We are currently operating in a period of economic uncertainty and capital markets disruption, which has been significantly impacted by geopolitical instability due to the ongoing military conflict between Russia and Ukraine.
We are currently operating in a period of economic uncertainty and capital markets disruption, which has been significantly impacted by geopolitical instability due to the ongoing military conflict between Russia and Ukraine and between Israel and Hamas and Hezbollah.
Inflation rates, particularly in the United States and Israel, have increased this year and are prolonged in the past months, at levels not seen in years in many countries where our customers reside.
Inflation rates, particularly in the United States and Israel, have increased in 2023 and are prolonged in the past months, at levels not seen in years in many countries where our customers reside.
If we cannot achieve and sustain profitability, our business, financial condition, and operating results will be adversely affected. We have incurred net losses in recent years, and we may not achieve or maintain profitability in the future. We experienced a net loss of $11 million and $5.3 million in the years ended December 31, 2022 and 2021, respectively.
If we cannot achieve and sustain profitability, our business, financial condition, and operating results will be adversely affected. We have incurred net losses in recent years, and we may not achieve or maintain profitability in the future. We experienced a net loss of $6. 3 million and $11.0 million in the years ended December 31, 2023 and 2022, respectively.
To date, we have 20 registered patents and one patent application pending in the United States; five registered patents in Europe, one registered patent in Mexico, and one patent application pending in WIPO, all of which in the general area of high-speed carrier class Ethernet service and transport over bonded VDSL2, G.SHDSL as well as Fiber.
To date, we have 17 registered patents in the United States; 5 registered patents in Europe, one registered patent in Mexico, , one registered patent in Indonesia, and one patent application pending in WIPO, all of which in the general area of high-speed carrier class Ethernet service and transport over bonded VDSL2, G.SHDSL as well as Fiber.
Our ability to publicly or privately sell equity securities and the liquidity of our common stock could be adversely affected if our common stock is delisted. ● Unfavorable global economic or political conditions prolonged and intensified throughout the second half of 2022 and in 2023 could adversely affect our business, financial condition or results of operations. ● Prolonged inflation rates could negatively impact our revenues and profitability if increases in the prices of our products or a decrease in customer spending results in lower sales. ● We may need to raise additional capital to meet our business requirements in the future, and such capital raising may be costly or difficult to obtain and could dilute our stockholders’ ownership interests. ● Our indebtedness could adversely affect our ability to raise additional capital to fund operations, limit our ability to react to changes in the economy or our industry and prevent us from meeting our financial obligations. ● To support our business growth, in the past years we increased our focus on serving certain IoT verticals, while continuing to serve our existing Telco customers.
Our ability to publicly or privately sell equity securities and the liquidity of our shares of common stock could be adversely affected if we are delisted from the Nasdaq Capital Market. ● Our financial condition raises substantial doubt as to our ability to continue as a going concern. 16 ● Unfavorable global economic or political conditions could adversely affect our business, financial condition or results of operations. ● Prolonged inflation rates could negatively impact our revenues and profitability if increases in the prices of our products or a decrease in customer spending results in lower sales. ● We may need to raise additional capital to meet our business requirements in the future, and such capital raising may be costly or difficult to obtain and could dilute our stockholders’ ownership interests. ● Our indebtedness could adversely affect our ability to raise additional capital to fund operations, limit our ability to react to changes in the economy or our industry and prevent us from meeting our financial obligations. ● To support our business growth, in the past years we increased our focus on serving certain IoT verticals, while continuing to serve our existing Telco customers.
Our indebtedness could have important consequences, including: ● our ability to obtain additional debt or equity financing for working capital, capital expenditures, debt service requirements, acquisitions and general corporate or other purposes may be limited; ● a portion of our cash flows from operations will be dedicated to the payment of principal and interest on the indebtedness and will not be available for other purposes, including operations, capital expenditures and future business opportunities; ● our ability to adjust to changing market conditions may be limited and may place us at a competitive disadvantage compared to less-leveraged competitors, if such exist; and ● we may be vulnerable during a downturn in general economic conditions or in our business, or may be unable to carry on capital spending that is important to our growth. 19 To support our business growth, in the past years we increased our focus on serving certain IoT verticals, while continuing to serve our existing Telco customers.
Our indebtedness could have important consequences, including: ● our ability to obtain additional debt or equity financing for working capital, capital expenditures, debt service requirements, acquisitions and general corporate or other purposes may be limited; ● a portion of our cash flows from operations will be dedicated to the payment of principal and interest on the indebtedness and will not be available for other purposes, including operations, capital expenditures and future business opportunities; ● our ability to adjust to changing market conditions may be limited and may place us at a competitive disadvantage compared to less-leveraged competitors, if such exist; and ● we may be vulnerable during a downturn in general economic conditions or in our business, or may be unable to carry on capital spending that is important to our growth.
We have incurred significant losses and negative cash flows from operations and incurred losses of $11 million and $5.3 million for the years ended December 31, 2022 and 2021, respectively. During the years ended December 31, 2022 and 2021, we had negative cash flows from operations of $7.8 million and $2.7 million, respectively.
We have incurred significant losses and negative cash flows from operations and incurred losses of $6. 3 million and $11.0 million for the years ended December 31, 2023 and 2022, respectively. During the years ended December 31, 2023 and 2022, we had negative cash flows from operations of $6.6 million and $7.8 million, respectively.
We are subject to laws and regulations affecting our domestic and international operations in a number of areas. These U.S. and foreign laws and regulations affect our activities including, but not limited to, in areas of labor, health and safety, tax, import and export requirements, foreign exchange controls and cash repatriation restrictions, data privacy requirements, anti-competition, and environmental.
These U.S. and foreign laws and regulations affect our activities including, but not limited to, in areas of labor, health and safety, tax, import and export requirements, foreign exchange controls and cash repatriation restrictions, data privacy requirements, anti-competition, and environmental.
As a result, we had an accumulated deficit of $33.4 million as of December 31, 2022. We cannot predict when or whether we will reach or maintain profitability.
As a result, we had an accumulated deficit of $39.7 million as of December 31, 2023. We cannot predict when or whether we will reach or maintain profitability.
In addition, the political and security situation in Israel may result in parties with whom we have agreements involving performance in Israel claiming that they are not obligated to perform their commitments under those agreements pursuant to force majeure provisions in such agreements.
In addition, the political and security situation in Israel may result in parties with whom we have agreements involving performance in Israel claiming that they are not obligated to perform their commitments under those agreements pursuant to force majeure provisions in such agreements. Further, in the past, the State of Israel and Israeli companies have been subjected to economic boycotts.
Any armed conflicts, terrorist activities or political instability in the region could adversely affect business conditions, could harm our results of operations and could make it more difficult for us to raise capital.
These situations may potentially escalate in the future to more violent events which may affect Israel and us. Any armed conflicts, terrorist activities or political instability in the region could adversely affect business conditions, could harm our results of operations and could make it more difficult for us to raise capital.
Changes in these laws, regulations or interpretations could require us to modify our platform in order to comply with these changes, to incur substantial additional costs or divert resources that could otherwise be deployed to grow our business, or expose us to unanticipated civil or criminal liability, among other things. 26 We are subject to laws and regulations worldwide, changes to which could increase our costs and individually or in the aggregate adversely affect our business.
Changes in these laws, regulations or interpretations could require us to modify our platform in order to comply with these changes, to incur substantial additional costs or divert resources that could otherwise be deployed to grow our business, or expose us to unanticipated civil or criminal liability, among other things.
As of December 31, 2022, our accumulated deficit was $33.4 million. We have funded our operations to date through equity financing and has cash on hand (including short term deposits and restricted cash) of $6.0 million and long-term deposits and restricted cash of $2.4 million as of December 31, 2022.
As of December 31, 2023, our accumulated deficit was $39. 7 million. We have funded our operations to date through equity financing and have cash on hand ( including short term bank deposits and restricted cash equivalents ) of $2.4 million and long-term restricted cash and cash equivalents and restricted bank deposits of $3.4 million as of December 31, 2023.
We may lose some or all of these relationships, or have a material weakness in negotiating favorable terms, or such unique components have or may be declared end-of-life which may require product design changes.
We also purchase unique components and products from suppliers who are exclusively able to fulfill such supply. We may lose some or all of these relationships, or have a material weakness in negotiating favorable terms, or such unique components have or may be declared end-of-life which may require product design changes.
Any of the foregoing could materially and adversely affect our business, financial condition, results of operations and prospects, and we cannot anticipate all of the ways in which the political or economic climate and financial market conditions could adversely impact our business. 18 Prolonged inflation rates could negatively impact our revenues and profitability if increases in the prices of our products or a decrease in customer spending results in lower sales which would adversely affect our business, results of operations and financial condition .
Prolonged inflation rates could negatively impact our revenues and profitability if increases in the prices of our products or a decrease in customer spending results in lower sales which would adversely affect our business, results of operations and financial condition.
Any disruption or failure of these systems or services could cause substantial errors, processing inefficiencies, security breaches, inability to use the systems or process transactions, loss of customers or other business disruptions, all of which could negatively affect our business and financial performance. 22 We depend on our management team and other key employees, and the loss of one or more of these employees or an inability to attract and retain highly skilled employees could adversely affect our business.
Any disruption or failure of these systems or services could cause substantial errors, processing inefficiencies, security breaches, inability to use the systems or process transactions, loss of customers or other business disruptions, all of which could negatively affect our business and financial performance.
Our patents issued as of March 15, 2023 will expire on dates ranging from March 20, 2023 to October 8, 2038, subject to any patent extensions that may be available for such patents. More specifically, the following patents will expire over the next three years: EP02250273.6, DE 60207187.9-08, US7187711, US7167511, US7003026, US7606315, US7613235, US7587042.
Our patents issued as of March 20, 2024 will expire on dates ranging from September 25, 2024 to October 31, 2038, subject to any patent extensions that may be available for such patents. More specifically, the following patents will expire over the next three years: EP02250273.6, US7606315, US7613235, EP1943827, EP1964377, GB2556826, MX279453, US7587042, IDP0030744.
If we cannot achieve and sustain profitability, our business, financial condition, and operating results will be adversely affected. ● We have negative cash flow from our operations and, given our projected funding needs, our ability to generate positive cash flow is uncertain. ● The price of our common stock does not meet the requirements for continued listing on Nasdaq.
If we cannot achieve and sustain profitability, our business, financial condition, and operating results will be adversely affected. ● We have negative cash flow from our operations and, given our projected funding needs, our ability to generate positive cash flow is uncertain. ● Our shares of common stock could be delisted from the Nasdaq Capital Market if we fail to regain compliance with the Nasdaq’s stockholders’ equity continued listing standards.
This change in our strategy may make it more difficult to evaluate our business growth and future prospects, and may increase the risk that we will not be successful in our plans. ● We may have ineffective sales and marketing efforts. ● We are dependent on the supply of electronic and mechanical components and our business would be harmed if we do not receive sufficient supply of such components in number and performance to meet our production requirements and product specifications in a timely and cost-effective manner. ● We outsource our product manufacturing and are dependent on our key manufacturers, and on our component and OEM suppliers.
This change in our strategy may make it more difficult to evaluate our business growth and future prospects, and may increase the risk that we will not be successful in our plans. ● We may have ineffective sales and marketing efforts. ● We outsource our product manufacturing and are dependent on our key manufacturers, and on our component and OEM suppliers.
Such fluctuations make forecasting more difficult and could cause us to fail to meet the expectations of investors and securities analysts, which could cause the trading price of our common stock to fall substantially, resulting in the loss of all or part of your investment, and subject us to costly lawsuits, including securities class action suits. 24 The loss of one or more of our significant customers, or any other reduction in the amount of revenue we derive from any such customer, would adversely affect our business, financial condition, results of operations and growth prospects.
Such fluctuations make forecasting more difficult and could cause us to fail to meet the expectations of investors and securities analysts, which could cause the trading price of our common stock to fall substantially, resulting in the loss of all or part of your investment, and subject us to costly lawsuits, including securities class action suits.
Our operations and the operations of our suppliers, channel partners and customers were disrupted to varying degrees by a range of external factors related to the COVID-19 pandemic, some of which are not within our control.
The widespread health crisis is adversely affecting the broader economies, financial markets and overall demand environment for many of our products. Our operations and the operations of our suppliers, channel partners and customers were disrupted to varying degrees by a range of external factors related to the COVID-19 pandemic, some of which are not within our control.
An additional $2 million was deposited in the designated account on or about February 28, 2023, as agreed between Migdalor and us. We do not know whether we will be able to generate sufficient cash flow from operations or raise additional capital to fund operating activities on a timely basis, on terms satisfactory to us, or at all.
We do not know whether we will be able to generate sufficient cash flow from operations or raise additional capital to fund operating activities on a timely basis, on terms satisfactory to us, or at all.
Our office where we conduct our research and development, operations, sales outside the Americas, and administration activities, is located in Israel. Many of our employees are residents of Israel. Accordingly, political, economic and military conditions in Israel and the surrounding region may directly affect our business.
Risks Related to Managing Our Business Operations in Israel Conditions in the Middle East and in Israel, where our research and development facilities are located, may harm our operations. Our office where we conduct our research and development, operations, sales outside the Americas, and administration activities, is located in Israel. Many of our employees are residents of Israel.
Our change in strategy and our efforts to serve the IoT verticals that we have focused on may prove more expensive than we currently anticipate, or may require longer development and deployment times, and we may not succeed in fully penetrating such IoT verticals, or at all. We may have ineffective sales and marketing efforts.
For the years ended December 31, 2023 and December 31, 2022, our Telco customers in the aggregate decreased from approximately 35% of our revenues in the year ended December 31, 2022, to 27% in the year ended December 31, 2023. 22 Our change in strategy and our efforts to serve the IoT verticals that we have focused on may prove more expensive than we currently anticipate, or may require longer development and deployment times, and we may not succeed in fully penetrating such IoT verticals, or at all.
If actual growth is less than expected, it would negatively impact our ability to become profitable, which would require we raise additional capital if required, which may not be available on favorable terms, or at all, which would impact our ability to carry on operations. 21 If our internal company cyber-security measures are breached or fail and unauthorized access is obtained to our IT environment, we may incur significant losses of data, which we may not be able to recover and may experience a delay in our ability to conduct our day-to-day business.
If our internal company cyber-security measures are breached or fail and unauthorized access is obtained to our IT environment, we may incur significant losses of data, which we may not be able to recover and may experience a delay in our ability to conduct our day-to-day business.
Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims, and countersuits attacking the validity and enforceability of our intellectual property rights. An adverse determination of any litigation proceedings could put our intellectual property at risk of being invalidated or interpreted narrowly and could put our related pending patent applications at risk of not issuing.
An adverse determination of any litigation proceedings could put our intellectual property at risk of being invalidated or interpreted narrowly and could put our related pending patent applications at risk of not issuing.
The extent and duration of the military action, resulting sanctions and resulting future market disruptions in the region are impossible to predict, but could be significant and have a severe adverse effect worldwide financial markets and economy. 25 The effects of health pandemics, such as the ongoing global COVID-19 pandemic, have had, and could in the future have, an adverse impact on our business, financial condition and results of operations.
The extent and duration of the military action, resulting sanctions and resulting future market disruptions in the region are impossible to predict, but could be significant and have a severe adverse effect worldwide financial markets and economy.
In order to protect our intellectual property rights, we may be required to spend significant resources to monitor and protect these rights. Litigation brought to protect and enforce our intellectual property rights could be costly, time-consuming, and distracting to management and could result in the impairment or loss of portions of our intellectual property.
Litigation brought to protect and enforce our intellectual property rights could be costly, time-consuming, and distracting to management and could result in the impairment or loss of portions of our intellectual property. Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims, and countersuits attacking the validity and enforceability of our intellectual property rights.
This change in our strategy may make it more difficult to evaluate our business growth and future prospects, and may increase the risk that we will not be successful in our plans. Since our inception, our business was focused on serving Telcos for enterprises and residential customers.
To support our business growth, in the past years we increased our focus on serving certain IoT verticals, while continuing to serve our existing Telco customers. This change in our strategy may make it more difficult to evaluate our business growth and future prospects, and may increase the risk that we will not be successful in our plans.
We are susceptible to problems, and have encountered problems in the past, in connection with procurement, decreasing quality, reliability, and protectability. Our devices are assembled by using fully manufactured parts, the manufacturing of which has been fully outsourced, and we have no direct control over the manufacturing processes of our products.
Our devices are assembled by using fully manufactured parts, the manufacturing of which has been fully outsourced, and we have no direct control over the manufacturing processes of our products. We outsource procurement and manufacturing activities to certain key manufacturers and certain component and OEM suppliers.
Effective trademark, copyright, patent, and trade secret protection may not be available in every country in which we conduct business. Further, intellectual property law, including statutory and case law, in the United States and other countries, is constantly developing, and any changes in the law could make it harder for us to enforce our rights.
Further, intellectual property law, including statutory and case law, in the United States and other countries, is constantly developing, and any changes in the law could make it harder for us to enforce our rights. 30 In order to protect our intellectual property rights, we may be required to spend significant resources to monitor and protect these rights.
In addition, it is widely believed that Iran, which has previously threatened to attack Israel, has been stepping up its efforts to achieve nuclear capability. Iran is also believed to have a strong influence among extremist groups in the region, such as Hamas in Gaza and Hezbollah in Lebanon.
In addition, Iran has threatened to attack Israel and is widely believed to be developing nuclear weapons. Iran is also believed to have a strong influence among extremist groups in the region, such as Hamas in Gaza, Hezbollah in Lebanon, the Houthi movement in Yemen and various rebel militia groups in Syria.
For the years ended December 31, 2022 and December 31, 2021, our top ten customers in the aggregate accounted for approximately 82% and 78% of our revenues.
We currently derive a significant portion of our revenue from a limited number of our customers. For the years ended December 31, 2023 and December 31, 2022, our top ten customers in the aggregate accounted for approximately 66% and 82% of our revenues.
The Israeli government is currently pursuing changes to Israel’s judicial system, which, if adopted, may have an adverse effect on the macroeconomic conditions in Israel and consequently on our business and our results of operations Actelis Israel received Israeli government grants for certain of our research and development activities, the terms of which require us to pay royalties and satisfy specified conditions in order to manufacture products and transfer technologies outside of Israel.
Actelis Israel received Israeli government grants for certain of our research and development activities, the terms of which require us to pay royalties and satisfy specified conditions in order to manufacture products and transfer technologies outside of Israel. If we fail to satisfy these conditions, we may be required to pay penalties and refund grants previously received.
Our indebtedness could adversely affect our ability to raise additional capital to fund operations, limit our ability to react to changes in the economy or our industry and prevent us from meeting our financial obligations.
We may also be required to recognize non-cash expenses in connection with certain securities we issue, such as convertible notes and warrants, which may adversely impact our financial condition. 21 Our indebtedness could adversely affect our ability to raise additional capital to fund operations, limit our ability to react to changes in the economy or our industry and prevent us from meeting our financial obligations.
In addition, we may incur substantial costs in pursuing future capital financing, including investment banking fees, legal fees, accounting fees, securities law compliance fees, printing and distribution expenses and other costs. We may also be required to recognize non-cash expenses in connection with certain securities we issue, such as convertible notes and warrants, which may adversely impact our financial condition.
In addition, we may incur substantial costs in pursuing future capital financing, including investment banking fees, legal fees, accounting fees, securities law compliance fees, printing and distribution expenses and other costs.
Such circumstances have hurt our profitability in the past, and may hurt our profitability in the future, and negatively affect our ability to deliver our product on time to customers. 20 Our lack of control in our manufacturing process due to the fact that we outsource our product manufacturing may increase quality or reliability risks and could limit our ability to quickly increase or decrease production rates.
Our lack of control in our manufacturing process due to the fact that we outsource our product manufacturing may increase quality or reliability risks and could limit our ability to quickly increase or decrease production rates. If necessary, switching production to other or additional subcontractors will entail a material cost and a temporary decrease in our productivity.
Our products and solutions have been deployed with more than 100 telecommunication service providers worldwide, in enterprise, residential and mobile base station connectivity applications. In recent years, as we have further developed our technology and rolled out additional products, we turned our focus on serving the IoT markets.
Since our inception, our business was focused on serving Telcos for enterprises and residential customers. Our products and solutions have been deployed with more than 100 telecommunication service providers worldwide, in enterprise, residential and mobile base station connectivity applications.
In December 2019, a novel coronavirus disease, or COVID-19, was first reported and on March 11, 2020, the World Health Organization characterized COVID-19 as a pandemic. The widespread health crisis is adversely affecting the broader economies, financial markets and overall demand environment for many of our products.
The effects of health pandemics, such as the ongoing global COVID-19 pandemic, have had, and could in the future have, an adverse impact on our business, financial condition and results of operations. In December 2019, a novel coronavirus disease, or COVID-19, was first reported and on March 11, 2020, the World Health Organization characterized COVID-19 as a pandemic.
As a result, stockholders could lose confidence in our financial and other public reporting, which would harm our business and the trading price of our common stock. Risks Related to Our Business We have a history of net losses, may incur substantial net losses in the future, and may not achieve or sustain profitability or growth in future periods.
As a result, stockholders could lose confidence in our financial and other public reporting, which would harm our business and the trading price of our common stock. 18 RISK FACTORS Investing in our common stock involves a high degree of risk.
Our future success is dependent on our ability to establish and maintain successful relationships with a diverse set of customers. We currently derive a significant portion of our revenue from a limited number of our customers.
The loss of one or more of our significant customers, or any other reduction in the amount of revenue we derive from any such customer, would adversely affect our business, financial condition, results of operations and growth prospects. Our future success is dependent on our ability to establish and maintain successful relationships with a diverse set of customers.
We believe we will make significant progress in our remediation plan within fiscal year 2023, but cannot assure that we will be able to fully remediate the material weakness by such time.
However, we cannot assure that we will be able to fully remediate the material weakness by such time. We also may incur significant costs to execute various aspects of our remediation plan but cannot provide a reasonable estimate of such costs at this time.
In accordance with Nasdaq’s listing rules, we were afforded a grace period of 180 calendar days, or until May 2, 2023, to regain compliance with the bid price requirement. In order to regain compliance, the bid price of our common stock must close at a price of at least $1.00 per share for a minimum of 10 consecutive trading days.
In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we had an initial grace period of 180 calendar days, or until May 2, 2023 (the “Minimum Bid Price Compliance Period”), to regain compliance with the minimum bid price requirement. On April 19, 2023, we implemented a 1-for-10 reverse stock split.
Our ability to publicly or privately sell equity securities and the liquidity of our common stock could be adversely affected if our common stock is delisted. The continued listing standards of Nasdaq require, among other things, that the minimum bid price of a listed company’s stock be at or above $1.00.
Our shares of common stock could be delisted from the Nasdaq Capital Market if we fail to regain compliance with the Nasdaq’s stockholders’ equity continued listing standards. Our ability to publicly or privately sell equity securities and the liquidity of our shares of common stock could be adversely affected if we are delisted from the Nasdaq Capital Market.
Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its neighboring Arab countries, the Hamas militant group and the Hezbollah. Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its trading partners could adversely affect our operations and results of operations.
Most of our officers and directors are residents of Israel. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its neighboring countries, and between Israel and the Hamas (an Islamist militia and political group in the Gaza Strip) and Hezbollah (an Islamist militia and political group in Lebanon).
Our future success depends, in part, on our ability to continue to attract and retain highly skilled personnel.
We depend on our management team and other key employees, and the loss of one or more of these employees or an inability to attract and retain highly skilled employees could adversely affect our business. Our future success depends, in part, on our ability to continue to attract and retain highly skilled personnel.
Although the Israeli government has in the past covered the reinstatement value of direct damages that were caused by terrorist attacks or acts of war, we cannot assure you that this government coverage will be maintained or, if maintained, will be sufficient to compensate us fully for damages incurred and the government may cease providing such coverage or the coverage might not suffice to cover potential damages.
Although the Israeli government currently covers the reinstatement value of direct damages that are caused by terrorist attacks or acts of war, we cannot assure you that this government coverage will be maintained. Any losses or damages incurred by us could have a material adverse effect on our business.
Our operations are focused on our fast-growing IoT business, while maintaining our commitment to our existing Telco customers. A significant portion of our revenue is from our existing Telco customers. For the years ended December 31, 2022 and December 31, 2021, our Telco customers in the aggregate accounted for approximately 35% and 48% of our revenues, respectively.
In recent years, as we have further developed our technology and rolled out additional products, we turned our focus on serving the IoT markets. Our operations are focused on our fast-growing IoT business, while maintaining our commitment to our existing Telco customers. A portion of our revenue continues to be derived from our existing Telco customers.
We currently have one outstanding loan with Migdalor, in the original principal amount of approximately $6 million, of which approximately $5.0 million remains outstanding as of December 31, 2022, and which is secured by all our assets.
We currently have two outstanding loans, with Migdalor, in the original principal amount of approximately $6 million, of which approximately $4.0 million remains outstanding as of December 31, 2023, and with Hamizrahi-Tefahot Bank with which we signed a credit line agreement in February 2024, off of which we have used approximately $552,000 to-date, and which are secured by all our assets (where our accounts receivable asset is carved out from Migdalor’s senior security for Mizrahi-Tefahot Bank).
Any losses or damages incurred by us could have a material adverse effect on our business. Any armed conflicts or political instability in the region would likely negatively affect business conditions generally and could harm our results of operations and product development. Further, in the past, the State of Israel and Israeli companies have been subjected to economic boycotts.
Any armed conflicts or political instability in the region would likely negatively affect business conditions and could harm our results of operations. To-date, we have received Israeli government war related support funding of approximately $100,000. Finally, political conditions within Israel may affect our operations.
We may not be able to fully remediate the identified material weakness until the steps described above have been completed and our internal controls have been operating effectively for a sufficient period of time.
We may not be able to fully remediate the identified material weakness until the steps described above have been completed and our internal controls have been operating effectively for a sufficient period of time. 36 During the year ending December 31, 2023 and up to the date of this Annual Report, we have made significant progress in our internal controls plan, including hiring new financial experts and increasing the amount of financial personnel, as well as mapping, documenting and testing our internal controls with the assistance of a third-party accounting firm with specific expertise in Sarbanes-Oxley (“SOX”) compliance.
Several countries still restrict business with the State of Israel and with Israeli companies. These restrictive laws and policies may have an adverse impact on our operating results, financial conditions or the expansion of our business. Similarly, Israeli corporations are limited in conducting business with entities from several countries.
These restrictive laws and policies may have an adverse impact on our operating results, financial condition or the expansion of our business. 32 Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its trading partners could adversely affect our operations and results of operations.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe believe our facilities are sufficient to meet our current needs and that suitable space will be available as and when needed. We do not own any real property. ITEM 3. LEGAL PROCEEDINGS. We are not currently a party to any material legal proceedings. ITEM 4. MINE SAFETY DISCLOSURES. Not applicable. 39 PART II
Biggest changeWe believe our facilities are sufficient to meet our current needs and that suitable space will be available as and when needed. We do not own any real property.
ITEM 2. PROPERTIES. We lease our facility in California, which consists of approximately 3,000 square feet of office, lab and warehouse space. Our lease expires in October 2025. We sublease our facility in California of approximately 9,000 square feet to a third party. Our lease expires in March 2024.
ITEM 2. PROPERTIES. We lease our facility in California, which consists of approximately 3,000 square feet of office, lab and warehouse space. Our lease expires in October 2025. We also sublease our previous facility in California of approximately 9,000 square feet to a third party. This lease expires on March 31, 2024, and we do intend to renew the lease.
Removed
We currently lease our facility in Israel, which consists of approximately 13,000 square feet of office, development and testing laboratories and warehouse space.
Added
We also lease an office and lab facility in Petach-Tikva, Israel consisting of approximately 13,500 square feet serving our R&D personnel, operations and administration as well as our EMEA and APAC sales team. Our lease expires in December 2025.
Removed
On or about the expiration of our current lease in April 2023, we expect to relocate to a new office location in Petach Tikva, consisting of approximately 11,000 square feet of office, development and testing laboratories and warehouse space.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeUnregistered Sales of Equity Securities We have previously disclosed all sales of securities without registration under the Securities Act of 1933. Repurchases of Equity Securities by the Issuer and Affiliated Purchasers There were no repurchases to the Stock Repurchase Plan during the year ended December 31, 2022. ITEM 6. [RESERVED] 40
Biggest changeUnregistered Sales of Equity Securities We have previously disclosed all sales of securities without registration under the Securities Act of 1933, as amended (the “Securities Act”). Repurchases of Equity Securities by the Issuer and Affiliated Purchasers During the year ended December 2023, the Company purchased 7,920 shares of its common stock, for a total price of $50,000.
Stockholders As of March 15, 2023, we had 17,407,565 outstanding shares of common stock, no outstanding shares of preferred stock, and approximately 58 holders of record of our outstanding shares of common stock.
Stockholders As of March 20, 2024, we had 3,020,268 outstanding shares of common stock outstanding, including treasury shares, no outstanding shares of preferred stock, and approximately 54 holders of record of our outstanding shares of common stock.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThis increase was primarily due to the increase in financial expenses, resulting from the increases in fair value of various financial instruments, as well as an increase in operating expenses mainly due to investment in sales and marketing, as well as expenses attributed to our IPO in May 2022 and being a public company. 43 Non-GAAP Financial Measures (U.S. dollars in thousands) Year Ended December 31, 2022 Year Ended December 31, 2021 Revenues $ 8,831 $ 8,545 GAAP net loss (10,982 ) (5,251 ) Interest Expense 830 690 Other financial expenses, net 4,051 2,701 Tax Expense 94 87 Fixed asset depreciation expense 23 37 Stock based compensation 220 53 Research and development, capitalization 525 586 Other one-time costs and expenses 1,714 - Non-GAAP Adjusted EBITDA (4,065 ) (1,097 ) GAAP net loss margin (124.36 )% (61.45 )% Adjusted EBITDA margin (46.03 )% (12.84 )% Use of Non-GAAP Financial Information Non-GAAP Adjusted EBITDA, Adjusted EBITDA margin are Non-GAAP financial measures.
Biggest changeNon-GAAP Financial Measures (U.S. dollars in thousands) Year Ended December 31, 2023 Year Ended December 31, 2022 Revenues $ 5,606 $ 8,831 GAAP net loss (6,286 ) (10,982 ) Interest Expense 766 830 Other financial expenses (income), net (1,843 ) 4,051 Tax Expense 78 94 Fixed asset depreciation expense 27 23 Stock based compensation 377 220 Research and development, capitalization 444 525 Other one-time costs and expenses 371 1,174 Non-GAAP Adjusted EBITDA (6,066 ) (4,065 ) GAAP net loss margin (112.14 )% (124.36 )% Adjusted EBITDA margin (108.20 )% (46.03 )% Use of Non-GAAP Financial Information Non-GAAP Adjusted EBITDA, Adjusted EBITDA margin are Non-GAAP financial measures.
Our unique portfolio of hybrid fiber-copper, environmentally hardened aggregation switches, high density Ethernet devices, advanced management software and cyber-protection capabilities, unlocks the hidden value of essential networks, delivering safer connectivity for rapid, cost-effective deployment. A primary focus of ours is to provide our customers with a cyber-secure network solution.
Our unique portfolio of hybrid fiber, environmentally hardened aggregation switches, high density Ethernet devices, advanced management software and cyber-protection capabilities, unlocks the hidden value of essential networks, delivering safer connectivity for rapid, cost-effective deployment. A primary focus of ours is to provide our customers with a cyber-secure network solution.
Adjusted results should be considered only in conjunction with results reported according to GAAP. 44 The non-GAAP financial measures are presented for supplemental informational purposes only. They should not be considered a substitute for financial information presented in accordance with GAAP, and may be different from similarly-titled non-GAAP measures used by other companies.
Adjusted results should be considered only in conjunction with results reported according to GAAP. 47 The non-GAAP financial measures are presented for supplemental informational purposes only. They should not be considered a substitute for financial information presented in accordance with GAAP, and may be different from similarly-titled non-GAAP measures used by other companies.
We exclude the costs in calculating adjusted results to allow us and investors to evaluate the performance of the business based upon its expected ongoing operating structure. We believe the adjusted measures, accompanied by the disclosure of the costs of these programs, provides valuable insight to our financial performance.
We exclude the costs described above in calculating adjusted results to allow us and investors to evaluate the performance of the business based upon its expected ongoing operating structure. We believe the adjusted measures, accompanied by the disclosure of the types of expenses included in these adjustments, provides valuable insight to our financial performance.
For the year ended December 31 (U.S. dollars in thousands) 2022 2021 Revenues $ 8,831 $ 8,545 Non-GAAP Adjusted EBITDA (4,065 ) (1,097 ) As a percentage of revenues (46.03 )% (12.84 )% Liquidity and Capital Resources Since our inception, we have financed our operations primarily through the sale of equity securities, debt financing, convertible loans and royalty-bearing grants that we received from the Israel Innovation Authority.
For the year ended December 31 (U.S. dollars in thousands) 2023 2022 Revenues $ 5,606 $ 8,831 Non-GAAP Adjusted EBITDA (6,066 ) (4,065 ) As a percentage of revenues (108.20 )% (46.03 )% Liquidity and Capital Resources Since our inception, we have financed our operations primarily through the sale of equity securities, debt financing, convertible loans and royalty-bearing grants that we received from the Israel Innovation Authority.
Net cash provided by financing activities was $15.3 million for the year ended December 31, 2022, compared to $2.9 million for the year ended December 31, 2021.
Net cash provided by financing activities was $3.8 million for the year ended December 31, 2023, compared to $15.3 million for the year ended December 31, 2022.
General and Administrative Expenses Our general and administrative expenses for the year ended December 31, 2022, amounted to $4.2 million compared to $1.2 million for the year ended December 31, 2021.
General and Administrative Expenses Our general and administrative expenses for the year ended December 31, 2023, amounted to $3.5 million compared to $4.2 million for the year ended December 31, 2022.
Financial Expenses, Net Our financial expense, net for the year ended December 31, 2022, was $4.9 million (including $0.8 million interest expenses) compared to $3.4 million (including $0.7 million interest expenses) for the year ended December 31, 2021.
Financial Expenses (income), Net Our financial expenses (income), net for the year ended December 31, 2023, was ($1.1) million (including $0.8 million interest expenses) compared to $4.9 million (including $0.8 million interest expenses) for the year ended December 31, 2022.
We have incurred significant losses and negative cash flows from operations and incurred losses of $11 million and $5.3 million for the years ended December 31, 2022 and 2021, respectively. During the years ended December 31, 2022 and 2021, we had negative cash flows from operations of $7.8 million and $2.7 million, respectively.
We have incurred significant losses and negative cash flows from operations and net loss was $6.3 million and $11.0 million for the years ended December 31, 2023, and December 31, 2022, respectively. During the years ended December 31, 2023, and December 31, 2022, we had negative cash flows from operations of $6.6 million and $7.8 million, respectively.
We currently have one outstanding loan with Migdalor Business Investments Fund, or Migdalor, in the original principal amount of approximately $6 million which is secured by all our assets, which remains outstanding as of December 31, 2022 of which approximately $5 million remains outstanding.
As of December 31, 2023, we have one outstanding loan with Migdalor Business Investments Fund (“Migdalor”) in the original principal amount of approximately $6 million which is secured by all our assets (the “Migdalor Loan”), and of which approximately $4. 3 million remains outstanding.
We currently provide Triple-Shield protection of coding, scrambling and encryption of the network traffic. When high speed, long reach, reliable and secure connectivity is required, network operators usually resort to using wireline communication over physical communication lines rather than wireless communication that is more limited in performance, reliability and security.
When high speed, long reach, reliable and secure connectivity is required, network operators usually resort to using wireline communication over physical communication lines rather than wireless communication that is more limited in performance, reliability and security.
We derive a significant portion of our revenue from a limited number of our customers. For the years ended December 31, 2022 and December 31, 2021, our top ten customers in the aggregate accounted for approximately 82% and 78% of our revenues.
For the years ended December 31, 2023 and December 31, 2022, our IoT customers in the aggregate accounted for approximately 73% and 65% of our revenues, respectively. We derive a significant portion of our revenue from a limited number of our customers.
However, such financing may not be available on favorable terms, or at all. In particular, the repercussions from the COVID 19 pandemic, inflation, economic uncertainty, as well as the war between Russia and the Ukraine, has resulted in, and may continue to result in, significant disruption of global financial markets, reducing our ability to access capital.
In particular, the repercussions from the COVID 19 pandemic, inflation, economic uncertainty, as well as the war between Russia and the Ukraine and Israel, Hamas and Hezbollah, has resulted in, and may continue to result in, significant disruption of global financial markets, reducing our ability to access capital.
Year ended December 31 2022 2021 (dollars in thousands) Revenues 8,831 8,545 Cost of revenues 4,721 4,575 Gross profit 4,110 3,970 Research and development expenses, net 2,766 2,443 Sales and marketing, net 3,282 2,204 General and administrative, net 4,163 1,183 Operating loss (6,101 ) (1,860 ) Interest expenses (830 ) (690 ) Other financial expenses, net (4,051 ) (2,701 ) Net Comprehensive Loss for the year (10,982 ) (5,251 ) Year Ended December 31, 2022, Compared to Year Ended December 31, 2021 Revenues Our revenues for the year ended December 31, 2022 amounted to $8.8 million, compared to $8.5 million for the year ended December 31, 2021.
Year ended December 31 2023 2022 (dollars in thousands) Revenues 5,606 8,831 Cost of revenues 3,706 4,721 Gross profit 1,900 4,110 Research and development expenses 2,702 2,766 Sales and marketing, net 3,030 3,282 General and administrative 3,531 4,163 Operating loss (7,363 ) (6,101 ) Interest expenses (766 ) (830 ) Other financial income (expenses), net 1,843 (4,051 ) Net Comprehensive Loss for the year (6,286 ) (10,982 ) 45 Year Ended December 31, 2023, Compared to Year Ended December 31, 2022 Revenues Our revenues for the year ended December 31, 2023 amounted to $5.6 million, compared to $8.8 million for the year ended December 31, 2022.
We monitor our cash flow projections on a current basis and take active measures to obtain the funding we require to continue our operations. However, these cash flow projections are subject to various uncertainties concerning their fulfillment, such as the ability to increase revenues due to lack of customers or decrease cost structure.
We monitor our cash flow projections on a current basis and take active measures to obtain the funding it requires to continue our operations. However, these cash flow projections are subject to various uncertainties concerning their fulfilment such as the ability to increase revenues by attracting and expanding its customer base or reducing cost structure.
Their most directly comparable financial measures prepared in accordance with GAAP are GAAP net loss and GAAP net loss margin.
Their most directly comparable financial measures prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) are GAAP net loss and GAAP net loss margin.
Research and Development Expenses Our research and development expenses for the year ended December 31, 2022, amounted to $2.8 million compared to $2.4 million for the year ended December 31, 2021.
Research and Development Expenses Our research and development expenses for the year ended December 31, 2023, amounted to $2.7 million compared to $2.8 million for the year ended December 31, 2022. The decrease is mainly due to a decrease in payroll expenses.
Management believes the following addresses the most critical accounting policies and estimates, which are those that are most important to the portrayal of our financial condition and results of operations and require management’s most difficult, subjective and complex judgments: Critical judgement and estimates Critical judgement and estimates have been used primarily in estimating the fair value of our financial instruments (for example, warrants, notes and stock options), as well as the estimate of future usage of existing inventory to determine the net value of our inventory (see notes in financial statements).
Critical judgement and estimates Critical judgement and estimates have been used primarily in estimating the fair value of our financial instruments (for example, warrants, notes and stock options), as well as the estimate of future usage of existing inventory to determine the net value of our inventory (see notes in financial statements).
Our transition to profitable operations is dependent on generating a level of revenue adequate to support our cost structure.
Our transition to profitable operations is dependent on generating a level of revenue adequate to support our cost structure. We expect to fund operations using cash on hand, through operational cash flows and raising additional proceeds.
Net cash used in investing activities was $4.0 million for the year ended December 31, 2022, compared to cash used in investing activities of $0.1 million for the year ended December 31, 2021.
Net cash provided by investing activities was $3.8 million for the year ended December 31, 2023, compared to cash used in investing activities of $4.0 million for the year ended December 31, 2022. The increase in cash used in investing activities was mainly due to changes in short term deposits and restricted bank deposits.
Sales and Marketing Expenses Our sales and marketing expenses for the year ended December 31, 2022, amounted to $3.3 million compared to $2.2 for the year ended December 31, 2021.
Sales and Marketing Expenses Our sales and marketing expenses for the year ended December 31, 2023, amounted to $3.0 million compared to $3.3 for the year ended December 31, 2022. The decrease was mainly due to a decrease in commission expenses as a result of the decrease in revenues.
Net Loss Our net loss for the year ended December 31, 2022 was $11 million, compared to a net loss of $5.3 million for the year ended December 31, 2021.
Operating Loss Our operating loss for the year ended December 31, 2023, was $7.4 million, compared to an operating loss of $6.1 million for the year ended December 31, 2022.
Estimating the value of net inventory is also influenced by assessments of future usage of such inventory which is also forward looking in nature and therefore subject to significant uncertainty. Accounting standards updates not yet adopted Please see Note 2(ii) to our consolidated financial statements included elsewhere in this prospectus for information
Estimating the value of net inventory is also influenced by assessments of future usage of such inventory which is also forward looking in nature and therefore subject to significant uncertainty. Marketable securities Marketable securities consist of debt securities.
Our revenues for the year ended December 31, 2022, increased by 3.3%, as we increased product and service delivery to our customers and successfully reduced our supply shortages. 45 Cash Flows The table below, for the periods indicated, provides selected cash flow information: (U.S. dollars in thousands) Year Ended December 31, 2022 Year Ended December 31, 2021 Net cash used in operating activities $ (7,768 ) $ (2,726 ) Net cash used in investing activities (4,034 ) (54 ) Net cash provided by financing activities 15,286 2,904 Net change in cash $ 3,484 $ 124 As of December 31, 2022, we had cash, cash equivalents, and restricted cash of $4.3 million compared to $0.8 million of cash, cash equivalents and restricted cash as of December 31, 2021.
If we are unable to raise additional funds when desired, our business, financial condition and results of operations could be adversely affected. 48 Cash Flows The table below, for the periods indicated, provides selected cash flow information: (U.S. dollars in thousands) Year Ended December 31, 2023 Year Ended December 31, 2022 Net cash used in operating activities (including the effect of exchange rate changes on cash and cash equivalents and restricted cash) $ (6,346 ) $ (7,768 ) Net cash provided by (used in) investing activities 3,821 (4,034 ) Net cash provided by financing activities 3,761 15,286 Net change in cash $ 1,236 $ 3,484 As of December 31, 2023, we had cash, cash equivalents, and restricted cash of $5.5 million compared to $4.3 million of cash, cash equivalents and restricted cash as of December 31, 2022.
The cash flow from financing activities for the year ended December 31, 2022, resulted from proceeds from the Company’s IPO in the amount of $15.4 million, net of underwriting discounts and commissions and other offering costs of $1.0 million. In addition, the increase is related to the $1.85 million raised from the private placement first and second closings.
The cash flow from financing activities for the year ended December 31, 2022, resulted from proceeds from the Company’s IPO in the amount of $15.4, net of underwriting discounts and commissions and other offering costs of $1.0 million. 49 Critical Accounting Policies and Estimates Management’s discussion and analysis of our financial condition and results of operations is based on the audited consolidated financial statements which are included elsewhere in this prospectus.
Our products and solutions have been deployed with more than 100 telecommunication service providers worldwide, in enterprise, residential and mobile base station connectivity applications. In recent years, as we have further developed our technology and rolled out additional products, we turned our focus on serving the wide-area IoT markets.
Since our inception, our business was focused on serving telecommunication service providers, also known as Telcos, providing connectivity for enterprises and residential customers. Our products and solutions have been deployed with more than 100 telecommunication service providers worldwide, in enterprise, residential and mobile base station connectivity applications.
This increase during the year ended December 31, 2022 is due to us incurring financial expenses in connection with increases in fair value of various financial instruments, such as convertible loan, note and warrants in the amount of $4.5 million up until the IPO when such instruments converted to equity.
In 2023, the Company recorded financial income in connection with a decrease in fair value of warrants in the amount of $1.7 million, while in 2022 the Company recorded finance expenses as a result of increase in fair value of various financial instruments prior to the IPO completed in May 2022, such as a convertible loan, note and warrants, in the amount of $4.5 million.
As of December 31, 2022, we had an accumulated deficit of $33.4 million. We had cash on hand (including short term deposits and restricted cash) of $6 million, and long-term deposits and restricted cash of $2.4 million, as of December 31, 2022.
We have funded our operations to date through equity and debt financing and have cash on hand (including short term bank deposits and restricted cash equivalents ) of $2.4 million and long-term restricted cash and cash equivalents and restricted bank deposits of $3.4 as of December 31, 2023.
Our operations are focused on our fast-growing IoT business, while maintaining our commitment to our existing Telco customers. 41 We currently derive a significant portion of our revenue from our existing Telco customers. For the years ended December 31, 2022 and December 31, 2021, our Telco customers in the aggregate accounted for approximately 35% and 48% of our revenues, respectively.
In recent years, as we have further developed our technology and rolled out additional products, we turned our focus on serving the wide-area IoT markets. Our operations are focused on our fast-growing IoT business, while maintaining our commitment to our existing Telco customers. 44 We derive a growing portion of our revenue from our existing and new IoT customers.
Cash used in operating activities amounted to $7.8 million for the year ended December 31, 2022, compared to $2.7 million for the year ended December 31, 2021. The increase in cash used in operating activities was mainly due to increase in operating expenses, as well as expenses associated with our IPO and from operating as a public company.
Cash used in operating activities (including the effect of exchange rate changes on cash and cash equivalents and restricted cash) amounted to $6.3 million for the year ended December 31, 2023, compared to $7.8 million for the year ended December 31, 2022.
The increase from the corresponding period was primarily attributable to an increase of $626,000 of revenues generated from Europe, the Middle East and Africa, offset by a decrease of $340,000 in revenues generated from North America and Asia Pacific, of which is primarily attributed to a decline in Telcom customers’ revenues. 42 Cost of Revenues Our cost of revenues for the year ended December 31, 2022, amounted to $4.7 million compared to $4.6 million for the year ended December 31, 2021.
Cost of Revenues Our cost of revenues for the year ended December 31, 2023, amounted to $3.7 million compared to $4.7 million for the year ended December 31, 2022. The decrease from the corresponding period was mainly due to the decrease in revenues, partially offset by the higher effect of indirect costs as the percent of the lower revenues.
DoD laboratories, and approved for deployment with U.S. Federal Government and U.S. defense forces as part of APL (Approved Product List) in 2019. Since our inception, our business was focused on serving telecommunication service providers, also known as Telcos, providing connectivity for enterprises and residential customers.
DoD laboratories and approved for deployment with U.S. Federal Government and U.S. defense forces as part of APL (Approved Product List) in 2019. In 2023, we received the U.S. DoD certification for cyber-security and interoperability and Federal Information Processing Standard (“FIPS”) compliance 140-2 compliance and inclusion in the Approved Product List.
This increase was mainly due to payroll, insurance expenses and professional services expenses, in connection with the IPO completed in May 2022 and our status as a public company thereafter. Operating Loss Our operating loss for the year ended December 31, 2022, was $6.1 million, compared to an operating loss of $1.9 million for the year ended December 31, 2021.
This decrease was primarily due to the decrease in revenues and gross margin offset by a decrease in financial expenses, net resulting from the expenses incur by the conversion of the financial instruments the Company had such as a convertible loan, note and warrants from the IPO completed in May 2022 for the year ended December 31, 2022, compared to income in connection with a decrease in fair value of warrants for the year ended December 31, 2023.
Removed
The increase was mainly due to an increase in payroll expense for research and development personnel in the amount of $256,000, and an increase in professional services related to research and development in the amount of $64,000.
Added
We provide Triple-Shield protection of coding, scrambling and encryption of the network traffic. We are working to expand our cyber-security offering by introducing a convergence of our network presence with the IoT devices at the edge of such networks, to which we call “Cyber Aware Networking”.
Removed
The increase from the corresponding period was mainly a result of our increased investments in sales and marketing, including in payroll expenses for additional personnel in the amount of $595,000, and increase in commission expenses in the amount of $249,000. We also had an increase in travel expenses in the amount of $181,000.
Added
For the years ended December 31, 2023 and December 31, 2022, our top ten customers in the aggregate accounted for approximately 66% and 82% of our revenues.
Removed
The increase was mainly due to higher expenses associated primarily with investment in sales and marketing and expenses attributed to the IPO completed in May 2022 and costs associated with our status as a public company.
Added
Migdalor consented to allow us to seek additional accounts receivable financing which would be used to partially repay the Migdalor Loan, which would reduce or eliminate the Additional Deposit (as defined in our agreement with Migdalor) and increase free operating cashflow.
Removed
Additionally, during the year ended December 31, 2022, we had income in the amount of $0.5 million from exchange rate differences. Since all convertible loans and nearly all warrants we had outstanding converted to equity in connection with the IPO, we do not expect additional material financial expenses going forward for these loans and warrants.
Added
In February 2024, we entered into a new credit line facility from an Israeli bank of up to $1.5 million that increases the Company’s operating liquidity while not increasing the Company’s total debt, as the Company will perform an early repayment of its existing debt using its restricted cash in a similar amount.
Removed
If we are unable to raise additional funds when desired, our business, financial condition and results of operations could be adversely affected.
Added
The new credit line will be secured by customer invoices and will incur interest at a Federal SOFR rate plus 5.5% and is available until the end of 2024, with possible extension.
Removed
The increase from the corresponding period was mainly due to change in short and long-term deposits, related to depositing cash into company interest bearing bank deposits in part due to increased collateral provided to our manufacturers.
Added
The Company performed a partial early repayment of its existing debt facility with Migdalor under the Loan Agreement using its restricted cash at an amount equal to the amount of funding from the new credit line to-date of approximately $550,000, therefore leaving the total debt amount of the Company at a similar level.
Removed
Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. Our management has conducted an evaluation of the effectiveness of our internal control over financial reporting.
Added
The decrease was primarily attributable to the decline of revenues generated from telco customers, as our focus continued to shift to IoT customers by $1.6 million significantly impacted by a two-year software license renewal in 2022, therefore not repeated in 2023, driving a $0.5 million decline, and to delays of IoT projects into 2024.
Removed
Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external purposes in accordance with U.S. GAAP.
Added
By region, it is primarily attributable to a decrease of $1.7 million of revenues generated from North America and a decrease of $1.5 million of revenues generated from Europe, the Middle East and Africa.
Removed
A material weakness is a deficiency or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
Added
This decrease was mainly due to a reduction in professional services of approximately $0.2 million, a decrease in management bonus expenses of $0.2 million, as well as a reduction in other non-payroll expenses associated with the IPO in 2022.
Removed
An effective internal control system, no matter how well designed, has inherent limitations, including the possibility of human error or overriding of controls, and therefore can provide only reasonable assurance with respect to reliable financial reporting.
Added
The increase was mainly due to the decrease in revenues and gross margin while continuing to invest in Sales and Marketing and Research and Development expenses, which was offset by a decrease in sales commission expenses as well as general and administrative one-time expenses due to the IPO in 2022.
Removed
Because of its inherent limitations, our internal control over financial reporting may not prevent or detect all misstatements, including the possibility of human error, the circumvention or overriding of controls or fraud.
Added
The decrease in the finance expenses, net partially offset by a decrease in income from exchange rate differences in the amount of $0.3 million for the year ended December 31, 2023, compared to $0.5 during the year ended December 31, 2022. 46 Net Loss Our net loss for the year ended December 31, 2023 was $6.3 million, compared to a net loss of 11.0 million for the year ended December 31, 2022.
Removed
Effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. 46 In connection with the preparation of our financial statements as of and for the years ended December 31, 2022 and 2021, we identified a material weakness in our internal control over financial reporting in the lack of sufficient finance personnel in the segregation of duties.
Added
In May and December 2023, we also received proceeds of $4.6 million, net of underwriting discounts and commissions and other offering costs of $0.4 million, following our private placements.
Removed
As such, there is a reasonable possibility that a misstatement of our financial statements will not be prevented or detected on a timely basis.
Added
As of December 31, 2023, our accumulated deficit was $3 9 .7 million.
Removed
As we have thus far not needed to comply with Section 404 of the Sarbanes-Oxley Act, neither we nor our independent registered public accounting firm has performed an evaluation of our internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act.
Added
If we are not successful in generating sufficient cash flow or completing additional financing, including debt refinancing which shall release restricted cash, then we will need to execute a new cost reduction plan in addition to previous cost reduction plans that were executed so far.
Removed
In light of this, we believe that it is possible that additional control deficiencies and material weaknesses may have been identified if such an evaluation had been performed. We are working to remediate the material weakness.
Added
There are no assurances, however, that we will be able to generate the revenue necessary to support our cost structure or that we will be successful in obtaining the level of financing necessary for our operations.
Removed
Our remediation efforts are ongoing, and we will continue our initiatives to strengthen our finance personnel and implement and document policies, procedures, and internal controls. We have taken steps to enhance our internal control environment and plan to take additional steps to remediate the deficiencies and address material weaknesses.
Added
Management has evaluated the significance of these conditions and has determined that we do not have sufficient resources to meet our operating obligations for at least one year from the issuance date of these consolidated financial statements. These conditions raise substantial doubt as to our ability to continue as a going concern.
Removed
Specifically: ● We have hired new qualified personnel in our accounting department.
Added
These consolidated financial statements have been prepared assuming that we will continue as a going concern and do not include any adjustments that might result from the outcome of this uncertainty.
Removed
We will continue to evaluate the structure of the finance organization and add resources as needed; ● We are implementing additional internal reporting procedures, including those designed to add depth to our review processes and improve our segregation of duties; and ● We are redesigning and implementing common internal control activities; and we will continue to establish policies and procedures and enhance corporate oversight over process-level controls and structures to ensure that there is appropriate assignment of authority, responsibility and accountability to enable remediating our material weaknesses.
Added
However, such financing may not be available on favorable terms, or at all.
Removed
In addition to the items noted above, as we continue to evaluate, remediate and improve our internal control over financial reporting, executive management may elect to implement additional measures to address control deficiencies or may determine that the remediation efforts described above require modification.
Added
The decrease in cash used in operating activities was mainly due to a decrease in trade receivables, which was partially offset by the increase in our operational loss.
Removed
Executive management, in consultation with and at the direction of our Audit Committee, will continue to assess the control environment and the above-mentioned efforts to remediate the underlying causes of the identified material weaknesses.
Added
The cash flow from financing activities for the year ended December 31, 2023, resulted from proceeds from private placements which closed on May and December 2023 in the aggregate amount of $4.6 million, net of underwriting commissions and other offering costs of $0.4 million see note 14(d) to the condensed consolidated financial statements.
Removed
Although we plan to complete this remediation process as quickly as possible, we are unable, at this time to estimate how long it will take; and our efforts may not be successful in remediating the deficiencies or material weaknesses.
Added
Management believes the following addresses the most critical accounting policies and estimates, which are those that are most important to the portrayal of our financial condition and results of operations and require management’s most difficult, subjective and complex judgments.
Removed
Notwithstanding the material weakness discussed above, we have performed additional procedures to ensure the consolidated financial statements included in this Form 10-K, fairly present, in all material respects, the Company’s financial position, results of operations and cash flows as of the dates, and for the periods presented, in conformity with U.S.
Added
We elected the fair value option to measure and recognize our investments in debt securities in accordance with ASC 825, Financial Instruments as we manage our portfolio and evaluates the performance on a fair value basis.
Removed
GAAP. 47 Critical Accounting Policies and Estimates Management’s discussion and analysis of our financial condition and results of operations is based on the audited consolidated financial statements of which are included elsewhere in this prospectus.
Added
Changes in fair value, realized gains and losses on sales of marketable securities, are reflected in the statements of operation as finance expense (income), net. Inventory Inventories are stated at the lower of cost (cost is determined on a weighted average cost method) or net realizable value. Our inventories generally are subject to impairment as they age.
Added
We regularly evaluate the carrying value of our inventories and when, based on such evaluation, factors indicate that impairment has occurred, we impair the inventories’ carrying value. Revenue recognition The Company’s products consist of hardware and embedded software that function together to deliver the product’s essential functionality. The embedded software is essential to the functionality of the Company’s products.

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