Date: 8/31/2022
Form: 6-K - Report of foreign issuer [Rules 13a-16 and 15d-16]
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
under the Securities Exchange Act of 1934
For the month of: August
Commission file number:
(Translation of registrant’s name into English)
8 Abba Eban Ave.
Herzliya, 4672526 Israel
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F X Form 40-F ☐
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulations S-T Rule 101(b)(1):_____
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulations S-T Rule 101(b)(7):_____
CONTENTS
This Report on Form 6-K consists of (i) the Registrant’s press release issued on August 31, 2022, announcing its financial results for the three- and six-month periods ended June 30, 2022, which is attached hereto as Exhibit 99.1; (ii) the Registrant’s unaudited Interim Condensed Consolidated Financial Statements as of and for the period ended June 30, 2022, which are attached hereto as Exhibit 99.2; (iii) the Registrant’s Management’s Discussion and Analysis of Financial Condition and Results of Operations for the six months ended June 30, 2022, which is attached hereto as Exhibit 99.3; and (iv) unaudited pro forma financial statements of the Registrant as of and for the period ended December 31, 2021, which is attached hereto as Exhibit 99.4.
The first paragraph titled "Key highlights for the six-months ended June 30, 2022” and the sections titled "Second Quarter 2022 Highlights and Recent Business Developments”, "Financial Results for the Three Months Ended June 30, 2022”, "Financial Results for the Six Months Ended June 30, 2022”, "Balance Sheet Highlights”, "Use of Non-IFRS Financial Results”, "Forward-Looking Statements” and the IFRS financial statements in the press release attached as Exhibit 99.1, the Interim Condensed Consolidated Financial Statements (Unaudited) as of June 30, 2022 attached as Exhibit 99.2, the Management’s Discussion and Analysis of Financial Condition and Results of Operations for the six months ended June 30, 2022 attached as Exhibit 99.3, and the Unaudited pro forma financial statements attached as Exhibit 99.4, are incorporated by reference into the registration statements on Form S-8 (File Nos. 333-233510, 333-239249, 333-250138 and 333-258744) and Form F-3 (File Nos. 333-233724, 333-235368, 333-236030, 333-233976, 333-237629 and 333-253983) of the Registrant, filed with the Securities and Exchange Commission, to be a part thereof from the date on which this report is submitted, to the extent not superseded by documents or reports subsequently filed or furnished.
1
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
Safe-T Group Ltd. (Registrant) | ||
| By | /s/ Hagit Gal | |
| Name: | Hagit Gal | |
| Title: | Corporate Legal Counsel | |
Date: August 31, 2022
2
Exhibit 99.1
Safe-T Group Reports Strong First Half 2022 Performance with Revenues of $8.8 Million, up 181% Compared to Prior Year
Sequential Quarterly Net Loss Reduced by 33%, Further Reductions Expected to Accelerate Significantly in Third Quarter
Recent Funding Initiatives to Add Over $5 Million on Top of Current Capital Resources to Support Continued Growth
HERZLIYA, Israel, August 31, 2022 - Safe-T Group Ltd. (Nasdaq: SFET) (TASE: SFET) (“Safe-T” or the “Company”), a global provider of cyber-security and privacy solutions to consumers and enterprises, today announced record financial results for the six-month period ended June 30, 2022.
Key highlights for the six months ended June 30, 2022:
| ● | Revenues for the six months ended June 30, 2022 reached a record high of $8,798,000, an increase of 181% compared to the six-month period ended June 30, 2021. In the three months ended June 30, 2022, revenues totaled a record of $4,777,000, an increase of 168% compared to the three months ended June 30, 2021. |
| ● | Gross profit for the six-month period ended June 30, 2022 amounted to $4,733,000, an increase of 279% compared to the corresponding period in 2021. For the three-month period ended June 30, 2022, gross profit amounted to $2,616,000, an increase of $225% compared to the corresponding period in 2021. |
| ● | Operating expense reduction efforts resulted in a 33% decrease in net loss in the second quarter of 2022 compared to the first quarter of 2022 (25% on a non-IFRS basis). Ongoing expense reduction efforts are expected to drive improved operational results in the third quarter of 2022. |
| ● | The Company’s privacy enterprises business reached break-even operating results (excluding recently eliminated legal expenses). |
“The financial results of the first half of 2022 reflect how effectively we continued to execute our strategy with diversified businesses into the large cybersecurity and privacy markets. We continue to drive significant and sustainable revenue growth while efficiently executing ongoing cost reduction efforts. During May and August, we secured a $2 million non-dilutive credit line facility from a leading Israeli bank and a strategic financing of up to $4 million, which may lead to potential future funding at premium valuations for the Company. Supporting our current level of growth requires investment into our consumer products and into acquiring new customers, and we are extremely proud to have secured additional funding through creative financing initiatives that support the Company’s growth well into 2023, without impacting our shareholders at current market valuations. We believe these achievements are a strong validation of our business model and the long-term potential of Safe-T,” said Shachar Daniel, Chief Executive Officer of Safe-T.
Second
Quarter 2022 Highlights and Recent Business Developments: “Our
strong first half results reinforce our confidence in the prospects and outlook for our business, as our growth strategy continues to
build momentum. In the second half of 2022, our team’s focus will be on further building upon the strength of our cybersecurity
and privacy business by leveraging the recent funding and our new products to drive additional growth. Over the past four quarters, our
Apple iOS offerings have driven continuous record growth. Through the strategic expansion of our consumer portfolio with new solutions
for the large, untapped desktop computer and Android markets, Safe-T is now positioned to capitalize on exciting new revenue opportunities.
We remain firmly focused on our cost reduction plan, improving the efficiency of the business and together with our new products and
investments into our customer acquisition program, we expect to not only drive significant additional revenue growth, but deliver improved
financial performance in the months ahead,” concluded Mr. Daniel. Financial
Results for the Three Months Ended June 30, 2022: 2 Financial
Results for the Six Months Ended June 30, 2022: We
define non-IFRS net loss as a loss which excludes, as applicable: (i) amortization and impairment of intangible assets and goodwill;
(ii) share-based compensation expense; (iii) issuance costs in connection with our offerings; (iv) changes in fair value of finance liabilities
including measurement of contingent consideration and (v) income taxes, starting from the second quarter of 2022 (adjusted retrospectively
for all prior periods presented). 3 The
following table presents the reconciled effect of the above on the Company’s net loss for the three- and six-months periods ended
June 30, 2022 and 2021, and for the year ended December 31, 2021: Balance
Sheet Highlights: Additional
details on the Company’s financials, products and strategy are available on the Company’s website, https://safetgroup.com/company-presentation/ Use
of Non-IFRS Financial Results In
addition to disclosing financial results calculated in accordance with International Financial Reporting Standards (IFRS), as issued
by the International Accounting Standards Board, this press release contains non-IFRS financial measures of net loss for the periods
presented that exclude the effect of share-based compensation expenses, amortization of intangible assets and the revaluation of finance
liabilities at fair value, including measurement of contingent consideration. The Company’s management believes the non-IFRS financial
information provided in this release is useful to investors’ understanding and assessment of the Company’s ongoing operations. Management
also uses both IFRS and non-IFRS information in evaluating and operating its business internally, and as such deemed it important to
provide this information to investors. The non-IFRS financial measures disclosed by the Company should not be considered in isolation, or
as a substitute for, or superior to, financial measures calculated in accordance with IFRS, and the financial results calculated in accordance
with IFRS and reconciliations to those financial statements should be carefully evaluated. Investors are encouraged to review the
reconciliations of these non-IFRS measures to their most directly comparable IFRS financial measures provided in the financial statement
tables herein. 4 Second
Quarter 2022 Financial Results Conference Call Mr.
Shachar Daniel, Chief Executive Officer of Safe-T, and Mr. Shai Avnit, Chief Financial Officer of Safe-T, will host a conference call
today, on August 31, 2022, at 08:30 a.m. ET, to discuss the second quarter of 2022 financial results, followed by a Q&A session. To
attend the conference call, please dial one of the following teleconferencing numbers. Please begin by placing your call five minutes
before the conference call commences. If you are unable to connect using the toll-free number, please try the international dial-in number: Participants
will be required to state their name and company upon entering the call. If you have any difficulty connecting with the conference call,
please contact Michael Glickman on behalf of Safe-T at 917-397-2272. The
conference call will be broadcast live and available for replay at https://viavid.webcasts.com/starthere.jsp?ei=1564701&tp_key=1dbb884489
and via the investor relations section of the Company’s website at https://www.safetgroup.com. A
replay of the conference call will be available after 11:30 a.m. Eastern time through September 28, 2022: About
Safe-T Group Ltd. Safe-T
Group Ltd. (Nasdaq, TASE: SFET) is a global provider of cyber-security and privacy solutions to consumers and enterprises. The Company
operates in three distinct segments - consumer cyber-security and privacy solutions, enterprise privacy solutions and enterprise cyber-security
solutions. Our
cyber-security and privacy solutions for consumers provide a wide security blanket against ransomware, viruses, phishing, and other online
threats, as well as a powerful, secured and encrypted connection, masking their online activity and keeping them safe from hackers. The
solutions are designed for both advanced and basic users, ensuring full protection for all personal and digital information. 5 Our
privacy solutions for enterprises are based on our advanced and secured proxy network, the world’s fastest, enabling our customers
to collect data anonymously at any scale from any public sources over the web using a unique hybrid network. Our network is the only
one of its kind that is comprised of millions of residential exit points based on our proprietary reflection technology and hundreds
of servers located at our ISP partners around the world. The infrastructure is optimally designed to guarantee the privacy, quality,
stability, and the speed of the service. Our
cyber-security solutions for enterprises, designed for cloud, on-premises and hybrid networks, mitigates attacks on enterprises’
business-critical services and sensitive data, while ensuring uninterrupted business continuity. Organizational data access, storage
and exchange use cases, from outside the organization or within, are secured according to the “validate first, access later”
philosophy of Safe-T’s zero trust. Our ZoneZero® solutions are available by our reseller, TerraZone Ltd., a global information
security provider, as a solution or cloud service. For
more information about Safe-T, visit www.safetgroup.com Forward-Looking
Statements This
press release contains forward-looking statements within the meaning of the “safe harbor” Words such as
“expects,” “anticipates,” “intends,” “plans,” “believes,”
“seeks,” “estimates” and similar expressions or variations of such words are intended to identify
forward-looking statements. For example, Safe-T is using forward-looking statements in this press release when it discusses its
expectation that ongoing expense reduction efforts will drive improved operation results, the potential for future funding at
premium valuations, the Company’s expectations regarding its momentum, potential, prospects and outlook, its expectations
regarding additional growth in the second half of 2022, the ability to capitalize on new revenue opportunities, improving the
efficiency of the business and to drive significant additional revenue growth and deliver improved financial performance in the
months ahead. Because such statements deal with future events and are based on Safe-T’s current expectations, they are subject
to various risks and uncertainties and actual results, performance or achievements of Safe-T could differ materially from those
described in or implied by the statements in this press release. The forward-looking statements contained or implied in this press
release are subject to other risks and uncertainties, including those discussed under the heading “Risk Factors” in
Safe-T’s annual report on Form 20-F filed with the Securities and Exchange Commission (“SEC”) on March 29, 2022,
and in any subsequent filings with the SEC. Except as otherwise required by law, Safe-T undertakes no obligation to publicly release
any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events. References and links to websites have been provided as a convenience, and the information
contained on such websites is not incorporated by reference into this press release. Safe-T is not responsible for the contents of
third-party websites. INVESTOR
RELATIONS CONTACTS: Steve Gersten,
Director of Investor Relations 813-334-9745 Michal
Efraty Investor
Relations, Israel +972-(0)52-3044404 6 Consolidated
Statements of Financial Position (In
thousands of USD) 7 Consolidated
Statements of Profit or Loss (In
thousands of USD, except per share amounts) 8
● Strong
Continued Growth: Safe-T continued to deliver strong year-over-year financial performance,
driven largely by growth in the Company’s consumer and enterprise privacy businesses.
● Cost
Reduction: Ongoing cost reductions implemented across the business last quarter, as well
as the final settlement of patent litigation related to the Company’s enterprise privacy
business1, will contribute significantly
to reduced general and administration costs throughout the remainder of 2022.
● Financing
Initiatives: In the second quarter, the Company secured a $2 million non-dilutive credit
line facility from United Mizrahi-Tefahot Bank Ltd.2
to support the growth of its consumer privacy solution. In August, Safe-T secured
a strategic investment of up to $4 million3 which
will be also utilized to bolster its operations and growth. Led by a former CEO of the Company’s
enterprise privacy business subsidiary, this investment features a unique structure to protect
shareholders from near-term dilution and is based on a revenue share model on newly acquired
customers. The investor is also incentivized to provide additional funding through warrants exercisable
at premiums ranging from 135% to 300% of the closing share price at the date of
the agreement. The cash available under these financing initiatives, aggregating up to more
than $5 million, is in addition to the $4.04 million cash and cash equivalents as of June
30, 2022.
● Product
Development and Offering: In July, the Company introduced two new products as it further
penetrates the global consumer market. Safe-T launched its privacy solution for Windows,
allowing it to enter the large desktop computer market with its first product and introduced
its privacy solution for Android mobile devices. With these launches, Safe-T can now serve
customers across all major hardware platforms including mobile devices running Apple iOS,
Android, and personal computers.
● Total
revenues amounted to $4,777,000 (Q2.2021: $1,784,000). The growth is attributed to the increase
in enterprise privacy business revenues and the consolidation of CyberKick’s revenues
following the completion of its acquisition on July 4, 2021.
● Cost
of revenues totaled $2,161,000 (Q2.2021: $979,000). The increase is mainly a result of the
consolidation of CyberKick’s cost of revenues, mainly in traffic acquisition costs
for third party products.
● Research
and development expenses totaled $889,000 (Q2.2021: $781,000). The increase is attributed
to the consolidation of CyberKick’s research and development expenses and the development
of new products, partially offset by a reduction in research and development expenses of
the enterprise security segment, due to the Company’s previously announced agreement
with TerraZone Ltd.
1 https://safetgroup.com/safe-t-group-announces-dismissal-of-patent-litigation/
2 https://safetgroup.com/safe-t-group-secures-a-non-dilutive-line-of-credit-from-united-mizrahi-tefahot-bank-ltd/
3 https://safetgroup.com/safe-t-group-secures-up-to-4-million-in-strategic-non-dilutive-funding-to-boost-consumer-privacy-business/
● Sales
and marketing expenses totaled $2,624,000 (Q2.2021: $1,308,000). The increase is mainly attributed
to the consolidation of CyberKick’s sales and marketing expenses, primarily its media
costs, partially offset by a reduction in the sales and marketing expenses of the enterprise
security segment, due to the agreement with TerraZone Ltd.
● General
and administrative expenses totaled $1,998,000 (Q2.2021: $1,488,000). The increase is mainly
due to higher professional fees, predominantly legal, in connection with patent-related proceedings
brought by and against Bright Data Ltd., which were resolved by settlement on May 17, 2022.
● IFRS
net loss totaled $3,158,000, or $0.10 basic loss per ordinary share (Q2.2021: net loss of
$2,370,000, or $0.09 basic loss per ordinary share).
● Non-IFRS
net loss totaled $2,523,000, or $0.08 basic loss per ordinary share (Q2.2021: loss of $2,174,000,
or $0.08 basic loss per ordinary share).
● Total
revenues amounted to $8,798,000 (H1.2021: $3,131,000). The growth is attributed to the increase
in enterprise privacy business revenues and the consolidation of CyberKick’s revenues
following the completion of its acquisition on July 4, 2021.
● Cost
of revenues totaled $4,065,000 (H1.2021: $1,883,000). The increase is mainly a result of
the consolidation of CyberKick’s cost of revenues, primarily traffic acquisition costs
for third party products.
● Research
and development expenses totaled $2,283,000 (H1.2021: $1,483,000). The increase is attributed
to the consolidation of CyberKick’s research and development expenses and the development
of new products, partially offset by a reduction in the research and development expenses
of the enterprise security segment, due to the agreement with TerraZone.
● Sales
and marketing expenses totaled $5,658,000 (H1.2021: $2,430,000). The increase is primarily attributed
to the consolidation of CyberKick’s sales and marketing expenses, primarily its media
costs, partially offset by a reduction in the sales and marketing expenses of the enterprise
security segment, due to the agreement with TerraZone Ltd.
● General
and administrative expenses totaled $4,249,000 (H1.2021: $2,588,000). The increase is mainly
due to higher professional fees, predominantly legal, in connection with patent-related proceedings
brought by and against Bright Data Ltd, which were resolved by settlement on May 17, 2022.
● IFRS
net loss totaled $7,885,000, or $0.26 basic loss per ordinary share (H1.2021: net loss of
$4,883,000, or $0.20 basic loss per ordinary share).
● Non-IFRS
net loss totaled $5,889,000, or $0.19 basic loss per ordinary share (H1.2021: loss of $4,186,000,
or $0.17 basic loss per ordinary share).
For the Six-Month
Period Ended
June 30,
For the Three-Month
Period Ended
June 30,
For the year Ended
December 31,
(thousands of U.S. dollars)
2022
2021
2022
2021
2021
Net loss for the period
7,885
4,883
3,158
2,370
13,125
Amortization and impairment of intangible assets and goodwill
1,409
541
992
272
2,112
Benefit from income tax
(155 )
(120 )
(75 )
(60 )
(975 )
Share-based compensation
1,014
565
79
236
2,356
Changes in fair value of finance liabilities
(272 )
(289 )
(361 )
(252 )
(1,644 )
Total adjustment
(1,996 )
(697 )
(635 )
(196 )
(1,849 )
Non-IFRS net loss
5,889
4,186
2,523
2,174
11,276
● As
of June 30, 2022, shareholders’ equity totaled $17,316,000, or approximately $0.57
per outstanding American Depository Share, as of June 30, 2022, compared to shareholders’
equity of $24,187,000 on December 31, 2021. The reduction is mainly due to the Company’s
operating loss during the period.
● As
of June 30, 2022, the Company’s cash and cash equivalents balance aggregated to $4,040,000,
compared to $3,828,000 on December 31, 2021. The Company’s cash balance does not account
for up to an additional $5.6 million in funds under its recently secured credit line facility and
investment financing.
Date:
Wednesday,
August 31, 2022
Time:
08:30
a.m. Eastern time, 05:30 a.m. Pacific time
Toll-free
dial-in number:
1-877-407-0789
Israel
Toll Free:
1-809-406-247
International
dial-in number:
1-201-689-8562
Conference
ID:
13732264
Toll-free
replay number:
1-844-512-2921
International
replay number:
1-412-317-6671
Replay
ID:
13732264
Safe-T Group Ltd.
investors@safetgroup.com
michal@efraty.com
June 30,
December 31,
2022
2021
2021
(Unaudited)
(Audited)
Assets
Current assets:
Cash and cash equivalents
4,040
13,122
3,828
Short-term restricted deposit
560
-
-
Short-term investments
-
6,182
5,887
Trade receivables
1,857
615
1,496
Other receivables
450
544
713
Total current assets
6,907
20,463
11,924
Non-current assets:
Long-term restricted deposits
150
89
84
Long-term deposit
65
57
65
Property and equipment, net
127
124
119
Right of use assets
333
605
451
Goodwill
10,429
5,387
10,998
Intangible assets, net
6,176
3,845
7,013
Total non-current assets
17,280
10,107
18,730
Total assets
24,187
30,570
30,654
Liabilities and equity
Current liabilities:
Trade payables
2,638
280
1,219
Other payables
2,004
1,668
2,839
Short-term bank loans
400
-
-
Contract liabilities
533
403
514
Contingent consideration
-
250
-
Derivative financial instruments
216
1,553
488
Short-term lease liabilities
288
367
365
Total current liabilities
6,079
4,521
5,425
Non-current liabilities:
Long-term contract liabilities
8
38
18
Long-term lease liabilities
88
347
197
Deferred tax liabilities
490
673
645
Liability in respect of the Israeli Innovation Authority
206
158
182
Total non-current liabilities
792
1,216
1,042
Total liabilities
6,871
5,737
6,467
Equity:
Ordinary shares
-
-
-
Share premium
92,520
85,159
91,112
Other equity reserves
16,338
15,089
16,732
Accumulated deficit
(91,542 )
(75,415 )
(83,657 )
Total equity
17,316
24,833
24,187
Total liabilities and equity
24,187
30,570
30,654
For the Six Months
Ended
June 30,
For the Three Months
Ended
June 30,
For the Year Ended December 31,
2022
2021
2022
2021
2021
(Unaudited)
(Unaudited)
(Unaudited)
(Unaudited)
(Audited)
Revenues
8,798
3,131
4,777
1,784
10,281
Cost of revenues
4,065
1,883
2,161
979
5,145
Gross profit
4,733
1,248
2,616
805
5,136
Research and development expenses
2,283
1,483
889
781
4,771
Sales and marketing expenses
5,658
2,430
2,624
1,308
8,348
General and administrative expenses
4,249
2,588
1,998
1,488
7,013
Impairment of goodwill
569
-
569
-
700
Contingent consideration measurement
-
(434 )
-
(434 )
(684 )
Operating expenses
12,759
6,067
6,080
3,143
20,148
Operating loss
(8,026 )
(4,819 )
(3,464 )
(2,338 )
(15,012 )
Finance income (expense), net
(10 )
(140 )
234
(70 )
942
Tax benefit
151
76
72
38
945
Net loss
(7,885 )
(4,883 )
(3,158 )
(2,370 )
(13,125 )
Basic loss per share*
(0.26 )
*(0.20 )
(0.10 )
*(0.09 )
(0.48 )
Diluted loss per share*
(0.26 )
*(0.20 )
(0.10 )
*(0.09 )
(0.48 )
* Adjusted retrospectively to reflect a 1:1 reverse share split
of our ordinary shares, effective as of October 15, 2021
Exhibit 99.2
SAFE-T GROUP LTD.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 2022
SAFE-T GROUP LTD.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 2022
TABLE OF CONTENTS
| Page | |
| CONDENSED CONSOLIDATED FINANCIAL STATEMENTS: | |
| Condensed Consolidated Statements of Financial Position | 1 |
| Condensed Consolidated Statements of Profit or Loss | 2 |
| Condensed Consolidated Statements of Changes in Equity | 3 |
| Condensed Consolidated Statements of Cash Flows | 4-5 |
| Notes to Condensed Consolidated Financial Statements | 6-13 |
i
SAFE-T GROUP LTD.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(UNAUDITED)
| June 30, 2022 | December 31, 2021 | |||||||
| U.S. dollars in thousands | ||||||||
| Assets | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash and cash equivalents | ||||||||
| Short-term investments | ||||||||
| Short-term restricted deposits | ||||||||
| Accounts receivable: | ||||||||
| Trade, net | ||||||||
| Other | ||||||||
| NON-CURRENT ASSETS: | ||||||||
| Long-term restricted deposits | ||||||||
| Long-term deposit | ||||||||
| Property and equipment, net | ||||||||
| Right of use assets | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| TOTAL ASSETS | ||||||||
| Liabilities and equity | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable and accruals: | ||||||||
| Trade | ||||||||
| Other | ||||||||
| Short-term bank loans | ||||||||
| Contract liabilities | ||||||||
| Derivative financial instruments | ||||||||
| Short-term lease liabilities | ||||||||
| NON-CURRENT LIABILITIES: | ||||||||
| Long-term contract liabilities | ||||||||
| Long-term lease liabilities | ||||||||
| Deferred tax liabilities | ||||||||
| Liability in respect of the Israeli Innovation Authority | ||||||||
| TOTAL LIABILITIES | ||||||||
| EQUITY: | ||||||||
| Ordinary shares | ||||||||
| Share premium | ||||||||
| Other equity reserves | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| TOTAL EQUITY | ||||||||
| TOTAL LIABILITIES AND EQUITY | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
1
SAFE-T GROUP LTD.
CONDENSED CONSOLIDATED STATEMENTS OF PROFIT OR LOSS
(UNAUDITED)
Six
months ended | ||||||||
2022 | 2021 | |||||||
U.S. dollars in thousands (except share and per share data) | ||||||||
| REVENUES | ||||||||
| COST OF REVENUES | ||||||||
| GROSS PROFIT | ||||||||
| OPERATING EXPENSES: | ||||||||
| Research and development expenses | ||||||||
| Selling and marketing expenses | ||||||||
| General and administrative expenses | ||||||||
| Impairment of goodwill | ||||||||
| Contingent consideration measurement | ( | ) | ||||||
| TOTAL OPERATING EXPENSES | ||||||||
| OPERATING LOSS | ||||||||
| FINANCIAL EXPENSE | ||||||||
| FINANCIAL INCOME | ( | ) | ( | ) | ||||
| FINANCIAL EXPENSE, net | ||||||||
| LOSS BEFORE TAXES ON INCOME | ||||||||
| TAXES ON INCOME | ( | ) | ( | ) | ||||
| NET LOSS FOR THE PERIOD | ||||||||
| ( | ) | ( | ) | |||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
SAFE-T GROUP LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(UNAUDITED)
| Ordinary shares | ||||||||||||||||||||||||
| Number of shares | Amount | Share premium | Other equity reserves | Accumulated deficit | Total | |||||||||||||||||||
| U.S. dollars in thousands (except number of share and per share data) | ||||||||||||||||||||||||
| BALANCE AT JANUARY 1, 2022 | ( | ) | ||||||||||||||||||||||
| CHANGES DURING THE SIX MONTHS ENDED JUNE 30, 2022: | ||||||||||||||||||||||||
| Exercise of pre-funded warrants | ( | ) | * | |||||||||||||||||||||
| Exercise of options | ( | ) | ||||||||||||||||||||||
| Share-based payments | - | |||||||||||||||||||||||
| Expiry of options | - | ( | ) | |||||||||||||||||||||
| Issuance of shares for service provider | ||||||||||||||||||||||||
| Net loss for the period | - | - | ( | ) | ( | ) | ||||||||||||||||||
| BALANCE AT JUNE 30, 2022 | ( | ) | ||||||||||||||||||||||
| BALANCE AT JANUARY 1, 2021 | ( | ) | ||||||||||||||||||||||
| CHANGES DURING THE SIX MONTHS ENDED JUNE 30, 2021: | ||||||||||||||||||||||||
| Exercise of warrants | ( | ) | ||||||||||||||||||||||
| Exercise of options | ( | ) | ||||||||||||||||||||||
| Share-based payments | - | |||||||||||||||||||||||
| Registered direct offerings, net of issuance costs of $ | ||||||||||||||||||||||||
| Net loss for the period | - | ( | ) | ( | ) | |||||||||||||||||||
| BALANCE AT JUNE 30, 2021 | ( | ) | ||||||||||||||||||||||
| * |
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
SAFE-T GROUP LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| Six months ended June 30 | ||||||||
| 2022 | 2021 | |||||||
| U.S. dollars in thousands | ||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss for the period | ( | ) | ( | ) | ||||
| Adjustments required to reflect the cash flows from operating activities: | ||||||||
| Effect of exchange rate differences on cash and cash equivalents | ( | ) | ||||||
| Change in financial liabilities at fair value through profit or loss | ( | ) | ( | ) | ||||
| Change in financial assets at fair value through profit or loss | ( | ) | ||||||
| Impairment of goodwill | ||||||||
| Depreciation and amortization | ||||||||
| Share-based payments | ||||||||
| Changes in operating asset and liability items: | ||||||||
| Decrease (increase) in trade receivables | ( | ) | ||||||
| Decrease in other receivables | ||||||||
| Increase in trade payables | ||||||||
| Increase (decrease) in other payables | ( | ) | ||||||
| Decrease in deferred tax liabilities | ( | ) | ( | ) | ||||
| Increase (decrease) in contract liabilities | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of short-term investments | ( | ) | ( | ) | ||||
| Sale of short-term investments | ||||||||
| Short-term restricted deposits | ( | ) | ||||||
| Right of use assets | ( | ) | ( | ) | ||||
| Repayment of long-term restricted deposits | ||||||||
| Long-term restricted deposits | ( | ) | - | |||||
| Purchase of intangible assets | ( | ) | ||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Net cash provided by (used in) investing activities | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Payment of contingent consideration | ( | ) | ||||||
| Short-term bank loans | ||||||||
| Lease payments (interest and principal) | ( | ) | ( | ) | ||||
| Proceeds from public and direct offerings | ||||||||
| Offering costs in connection with public and private offerings | ( | ) | ||||||
| Proceeds from exercise of warrants and pre-funded warrants | ||||||||
| Net cash provided by financing activities | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
SAFE-T GROUP LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| Six months ended June 30 | ||||||||
| 2022 | 2021 | |||||||
| U.S. dollars in thousands | ||||||||
| INCREASE IN CASH AND CASH EQUIVALENTS | ||||||||
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | ||||||||
| EFFECT OF EXCHANGE RATE DIFFERENCES IN RESPECT OF CASH AND CASH EQUIVALENTS | ( | ) | ||||||
| CASH AND CASH EQUIVALENTS AT END OF PERIOD | ||||||||
| SUPPLEMENTARY DATA ON ACTIVITIES NOT INVOLVING CASH FLOWS: | ||||||||
| Acquisition of right-of-use assets | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
SAFE-T GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - GENERAL:
| a. | Safe-T Group Ltd. (collectively referred to with its wholly-owned subsidiaries as the "Company”) is a global provider of cyber-security and privacy solutions to consumers and enterprises. |
Set forth below are details regarding the Company’s subsidiaries as of June 30, 2022:
| Name of company | In this report | Principal place of business | Nature of business activities | Percentage held directly by the Company | Rate of shares held directly or indirectly by the Company | |||||||||
| Safe-T Data A.R Ltd. | % | % | ||||||||||||
| Safe-T USA Inc. | - | % | ||||||||||||
| NetNut Ltd. | % | % | ||||||||||||
| NetNut Networks LLC | - | % | ||||||||||||
| CyberKick Ltd. | % | % | ||||||||||||
| Spell Me Ltd. | - | % | ||||||||||||
| iShield Inc. | - | % | ||||||||||||
| RoboVPN Inc. (1) | % | |||||||||||||
| (1) | Incorporated on February 16, 2022. |
| b. | The Company’s ordinary shares are listed on the Tel Aviv Stock Exchange ("TASE”) and as of August 17, 2018, the Company’s American Depositary Shares ("ADSs”) are listed on the Nasdaq Capital Market. |
| c. |
The Company has suffered recurring losses from operations, has an accumulated deficit as of June 30, 2022, as well as cash outflows from operating activities in recent years. The Company expects to continue incurring losses and negative cash flows from operations until its products reach commercial profitability. The Company monitors its cash flow projections on a current basis and takes active measures to obtain the funding it requires to continue its operations. These cash flow projections are subject to various risks and uncertainties concerning their fulfilment. These factors and the risk inherent in the Company’s operations may cast significant doubt on the Company’s ability to continue as a going concern. These consolidated financial statements have been prepared assuming that the Company will continue as a going concern and do not include any adjustments that might result from the outcome of this uncertainty.
As a company with securities registered under the U.S. Securities Exchange Act of 1934, as amended, the Company is required to have its interim financial statements reviewed in accordance with Public Company Oversight Board ("PCAOB”) standards. References in these International Financial Reporting Standards interim financial statements to matters that may cast significant doubt about the Company’s ability to continue as a going concern also raise substantial doubt as contemplated by the PCAOB standards.
Management’s plans include the continued commercialization of the Company’s products and raising capital through the sale of additional equity securities, debt or capital inflows from strategic partnerships. There are no assurances, however, that the Company will be successful in obtaining the level of financing needed for its operations. If the Company is unsuccessful in commercializing its products and raising capital, it may need to reduce activities, curtail or cease operations. |
6
SAFE-T GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
NOTE 2 - BASIS OF PREPARATION:
| a. | Basis of presentation |
| The Company’s condensed consolidated financial statements for the six months ended June 30, 2022, have been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting”. These condensed consolidated financial statements, which are unaudited, do not include all the information and disclosures that would otherwise be required in a complete set of annual financial statements and should be read in conjunction with the annual financial statements as of December 31, 2021 and their accompanying notes, which have been prepared in accordance with International Financial Reporting Standards as published by the International Accounting Standards Board. |
| The results of operations for the six months ended June 30, 2022, are not necessarily indicative of the results that may be expected for the entire fiscal year ending December 31, 2022, or for any other interim period. |
| b. | Estimates |
| The preparation of interim financial statements requires the Company’s management to exercise its judgment and to use significant accounting estimates and assumptions that affect the application of the Company’s accounting policies and the amounts of reported assets, liabilities, income and expenses. Actual results may materially differ from those estimates. In preparation of these condensed consolidated financial statements, the significant judgments that were exercised by the management in applying the Company’s accounting policies and the key sources of estimation uncertainty were similar to those applied in the Company’s annual financial statements for the year ended December 31, 2021. |
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES:
| The accounting policies applied in the preparation of these condensed consolidated financial statements are consistent with those applied in the preparation of the annual financial statements as of December 31, 2021 expect as described below.
New International Financial Reporting Standards
In April 2022, the International Financial Reporting Interpretations Committee (IFRIC) issued an agenda decision clarifying that an entity should present a demand deposit with restrictions on use arising from a contract with a third party as cash and cash equivalents in the statements of financial position and cash flows, unless those restrictions change the nature of the deposit such that it no longer meets the definition of cash in International Accounting Standard 7. The Company applied the agenda decision in the second quarter of 2022 retrospectively, with no impact on its condensed consolidated statement of cash flows or the condensed consolidated balance sheet. |
NOTE 4 - DISAGGREGATED REVENUE DATA:
| Set forth below is a breakdown of the Company’s revenue by revenue stream for the six-month periods ended June 30, 2022 and June 30, 2021: |
| Six months ended June 30 | ||||||||
| 2022 | 2021 | |||||||
| U.S. dollars in thousands | ||||||||
| Software as a Service | ||||||||
| Advertising services | ||||||||
| Software licenses | ||||||||
| Software support services | ||||||||
7
SAFE-T GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
NOTE 5 - FINANCIAL INSTRUMENTS AND FINANCIAL RISKS:
| a. | Fair value disclosure
Level 1 financial instruments
As of June 30, 2022, the Company had no financial assets measured at level 1. As of December 31, 2021, the Company has equity marketable securities measured at fair value through profit or loss, which met the level 1 criteria. As of December 31, 2021, equity marketable securities totaled to $
As of June 30, 2022 and December 31, 2021, the Company has no financial liabilities measured at level 1.
Level 2 financial instruments
As of June 30, 2022, the Company had no financial assets measured at level 2 criteria. As of December 31, 2021, the Company has debt marketable securities measured at fair value through profit or loss, which met the level 2 criteria. As of December 31, 2021, debt marketable securities totaled to $
As of June 30, 2022 and December 31, 2021, the Company has no financial liabilities measured at level 2.
Level 3 financial instruments
As of June 30, 2022 and December 31, 2021, the Company has no financial assets at level 3.
As of June 30, 2022 and December 31, 2021, the Company has several financial liabilities measured at fair value through profit or loss, which met the level 3 criteria. See section b below. |
8
SAFE-T GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
NOTE 5 - FINANCIAL INSTRUMENTS AND FINANCIAL RISKS (continued):
| b. |
Fair value measurements based on unobservable data (level 3)
The following tables present the changes in level 3 instruments for the six months ended June 30, 2022 and June 30, 2021: |
Derivative |
Total | |||||||
| U.S. dollars in thousands | ||||||||
| Balance as of January 1, 2022 | ||||||||
| Recognition of day 1 loss within profit or loss | ||||||||
| Changes in fair value recognized within profit or loss | ( | ) | ( | ) | ||||
| Balance as of June 30, 2022 | ||||||||
| Contingent consideration | Derivative financial instruments | Total | ||||||||||
| U.S. dollars in thousands | ||||||||||||
| Balance as of January 1, 2021 | ||||||||||||
| Payment of contingent consideration | ( | ) | ( | ) | ||||||||
| Recognition of day 1 loss within profit or loss | ||||||||||||
| Changes in fair value recognized within profit or loss | ( | ) | ( | ) | ( | ) | ||||||
| Balance as of June 30, 2021 | ||||||||||||
| c. |
Fair value of financial assets and financial liabilities measured at amortized cost
Assets and liabilities, which are not measured on a recurring basis at fair value, are presented at their carrying amount, which approximates their fair value. See further information in Note 7 regarding the Company’s credit line and short-term bank loans. |
9
SAFE-T GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
NOTE 6 - INTANGIBLE ASSETS:
| Testing of goodwill impairment
For the six months ended June 30, 2022
As of June 30, 2022, the Company performed a goodwill impairment test for its NNNW cash-generating unit ("CGU”). The quantitative assessment for goodwill impairment included a decrease in forecasted operating results. For the purpose of the goodwill impairment test, the recoverable amount was assessed by management based on value-in-use calculations. The value-in-use calculations use pre-tax cash flow projections covering a
With respect to the NetNut and the CyberKick CGUs, during the six months ended June 30, 2022, the Company assessed triggering events for potential impairment for each of those CGUs and determined that adjustment to the carrying value of goodwill was necessary.
For the six months ended June 30, 2021
During the six months ended June 30, 2021, the Company assessed triggering events for potential impairment for each of its CGUs and determined that adjustment to the carrying value of goodwill was necessary. |
NOTE 7 – CREDIT LINE AND SHORT-TERM BANK LOANS:
| On May 25, 2022, CyberKick entered into a revolving line of credit agreement with United Mizrahi-Tefahot Bank Ltd. (the "Bank”), in an amount of up to $
In June 2022, CyberKick borrowed an amount of $ |
10
SAFE-T GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
NOTE 8 - EQUITY:
| a. | Composition |
| Number of shares | ||||||||||||||||
| Authorized | Issued and paid | Authorized | Issued and paid | |||||||||||||
| June 30, 2022 | December 31, 2021 | |||||||||||||||
| Ordinary shares of no-par value | ||||||||||||||||
| b. | Shares issuance to service providers
During the six months ended June 30, 2022, the Company issued |
NOTE 9 - CONTINGENT LIABILITIES:
As further described in Note 11 to the Company’s annual financial statements for the year ended December 31, 2021, on June 18, 2021, Bright Data Ltd. ("Bright Data”) filed an action against NetNut alleging infringement of two U.S. patents and later on October 11, 2021 amended its complaint to assert infringement of additional three U.S. patents, as well as a claim for alleged false advertising. On May 17, 2022, the case was dismissed with prejudice as part of a settlement by the parties.
NOTE 10 - LOSS PER SHARE:
|
Basic and diluted
Basic loss per share is calculated by dividing the loss attributable to Company’s owners by the weighted average number of issued ordinary shares in issue, including pre-funded warrants.
The Company adjusts the loss attributable to holders of ordinary shares and the weighted average number of shares in issue, to reflect the effect of all potentially dilutive ordinary shares, as follows: the Company adds to the weighted average number of shares in issue that was used to calculate the basic loss per share, the weighted average of the number of shares to be issued assuming that all shares that have a potentially dilutive effect would be converted into shares, and adjusts net loss attributable to holders of the Company’s ordinary shares to exclude any profits or losses recorded during the period with respect to potentially dilutive shares. The potential shares, as mentioned above, are only taken into account in cases where their effect is dilutive (reducing the earnings per share or increasing the loss per share).
Diluted loss per share is the same as basic loss per share for all periods presented because the effects of potentially dilutive items were antidilutive. |
| Six months ended June 30 | ||||||||
| 2022 | 2021 | |||||||
| Loss attributable to Company’s owners (U.S. dollars in thousands) | ( | ) | ( | ) | ||||
| The weighted average of the number of ordinary shares in issue (in thousands) | ||||||||
| Basic and diluted loss per share (U.S. dollar) | ( | ) | ( | ) | ||||
11
SAFE-T GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
NOTE 11 - ENTITY LEVEL DISCLOSURES AND SEGMENT INFORMATION:
| The following tables present details of the Company’s operating segments for the six months ended June 30, 2022 and 2021: |
| Consumer cybersecurity & privacy | Enterprise privacy | Enterprise cybersecurity | Consolidated | Adjustment
to net loss for the period | ||||||||||||||||
| Six months ended June 30, 2022 | ||||||||||||||||||||
| U.S. dollar in thousands | ||||||||||||||||||||
| Revenues | ||||||||||||||||||||
| Adjusted operating loss | ( | ) | ( | )* | ( | ) | ( | ) | ||||||||||||
| Non-attributable corporate expenses | ( | ) | ||||||||||||||||||
| Share-based payments | ( | ) | ||||||||||||||||||
| Impairment of goodwill | ( | ) | ||||||||||||||||||
| Depreciation and amortization | ( | ) | ||||||||||||||||||
| Operating loss | ( | ) | ||||||||||||||||||
| Financial expenses, net | ( | ) | ||||||||||||||||||
| Taxes on income | ||||||||||||||||||||
| Net loss for the period | ( | ) | ||||||||||||||||||
| Enterprise privacy | Enterprise cybersecurity | Consolidated | Adjustment to net loss for the period | |||||||||||||
| Six months ended June 30, 2021 | ||||||||||||||||
| U.S. dollar in thousands | ||||||||||||||||
| Revenues | ||||||||||||||||
| Adjusted operating loss | ( | )* | ( | ) | - | ( | ) | |||||||||
| Non-attributable corporate expenses | ( | ) | ||||||||||||||
| Share-based payments | ( | ) | ||||||||||||||
| Contingent consideration measurement | ||||||||||||||||
| Depreciation and amortization | ( | ) | ||||||||||||||
| Operating loss | ( | ) | ||||||||||||||
| Financial income, net | ( | ) | ||||||||||||||
| Taxes on income | ||||||||||||||||
| Net loss for the period | ( | ) | ||||||||||||||
| * | Including legal expenses related to Bright Data action, see also Note 9. |
12
SAFE-T GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
NOTE 12 - SUBSEQUENT EVENTS:
| a. | Strategic funding |
On August 8, 2022, the Company signed
a strategic funding agreement with O.R.B. Spring Ltd. ("O.R.B.”) of up to $
As part of the agreement, the Company
granted
On August 11, 2022, O.R.B. transferred
to the Company a first tranche of $
| b. | Options grant |
On August 30, 2022,
| c. | RoboVPN Technologies |
On July 1, 2022, CyberKick incorporated a new wholly owned subsidiary - RoboVPN Technologies Ltd. The new company was registered in Cyprus.
13
Exhibit 99.3
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As of June 30, 2022, and for the Six Months then Ended
Cautionary Statement Regarding Forward-Looking Statements
Certain information included in this analysis may be deemed to be “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. Forward-looking statements are often characterized by the use of forward-looking terminology such as “may,” “will,” “expect,” “plans,” “anticipate,” “estimate,” “continue,” “believe,” “should,” “intend,” “project” or other similar words, but are not the only way these statements are identified.
These forward-looking statements may include, but are not limited to, statements relating to our objectives, plans and strategies, statements that contain projections of results of operations or of financial condition, expected capital needs and expenses, statements relating to the research, development, completion and use of our products, and all statements (other than statements of historical facts) that address activities, events or developments that we intend, expect, project, believe or anticipate will or may occur in the future.
Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties. We have based these forward-looking statements on assumptions and assessments made by our management in light of their experience and their perception of historical trends, current conditions, expected future developments and other factors they believe to be appropriate.
Important factors that could cause actual results, developments and business decisions to differ materially from those anticipated in these forward-looking statements include, among other things:
| ● | our planned level of revenues and capital expenditures and ability to continue as a going concern; |
| ● | our ability to market and sell our products; |
| ● | our plans to continue to invest in research and development to develop technology for both existing and new products; |
| ● | our ability to maintain our relationships with channel partners; |
| ● | our ability to maintain or protect the validity of our European, U.S. and other patents and other intellectual property; |
| ● | our ability to engage in future strategic opportunities, including, but not limited to, strategic acquisitions, and achieve any expected benefits therefrom; |
| ● | our ability to launch and penetrate markets in new locations, including taking steps to expand our activities in Europe and Southeast Asia and to enter into engagements with new business partners in those markets; |
| ● | our intention to increase marketing and sales activities; |
| ● | our intention to establish partnerships with industry leaders; |
| ● | our ability to implement on-line distribution channels and to generate sales from such channels; |
| ● | our ability to locate additional funding available to us on acceptable terms; |
| ● | our ability to retain key executive members; |
| ● | our ability to internally develop new inventions and intellectual property; |
| ● | our expectations regarding future changes in our cost of revenues and our operating expenses; |
| ● | our expectations regarding our tax classifications; |
| ● | interpretations of current laws and the passages of future laws; |
| ● | our ability to regain and effectively comply with the minimum bid requirements of Nasdaq; |
| ● | the potential impact of litigation; and |
| ● | acceptance of our business model by investors. |
The foregoing list is intended to identify only certain of the principal factors that could cause actual results to differ. For a more detailed description of the risks and uncertainties affecting our company, reference is made to our Annual Report on Form 20-F for the year ended December 31, 2021, or our Annual Report, which is on file with the Securities and Exchange Commission, or the SEC, and the other risk factors discussed from time to time by our company in reports filed or furnished to the SEC.
Except as otherwise required by law, we undertake no obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
General
Introduction
Unless indicated otherwise by the context, all references in this report to “Safe-T”, the “Company”, “we”, “us” or “our” are to Safe-T Group Ltd. and its subsidiaries. All references in this report to ”dollars” or “$” means United States dollars.
You should read the following discussion and analysis in conjunction with our unaudited consolidated financial statements for the six months ended June 30, 2022 and notes thereto, and together with our audited consolidated financial statements for the year ended December 31, 2021 and notes thereto filed with the SEC as part of our Annual Report.
Overview
We generate mainly SaaS revenues and advertising services revenues.
The SaaS revenues are generated when customers are subscribing to our enterprise and consumer privacy and security platforms and paying for the packages they choose. The packages are usually for the earlier of a month to a year or maximum bandwidth usage in the enterprise privacy segment, and for a month or a year in the consumers privacy and cybersecurity segments. Our revenue is recognized on a straight-line basis over the package period.
We generate revenues in the consumer privacy arena also from providing advertising services to enterprise customers, using marketing tools on various sites in order to persuade the user to acquire the enterprise customers’ privacy products. Revenue is recognized at the point in time when a user purchased an application or software of a customer.
2
Results of Operations
The following discussion of our unaudited results of operations for the six month periods ended June 30, 2022 and 2021, included in the following table, which presents selected financial information data, is based upon our unaudited statements of profit or loss contained in our financial statements for those periods, and the related notes.
| For the Six-Month Period Ended June 30, | ||||||||
| U.S. dollars in thousands | 2022 | 2021 | ||||||
Consolidated Statements of Profit or Loss Data | ||||||||
| Revenues | 8,798 | 3,131 | ||||||
| Cost of revenues | 4,065 | 1,883 | ||||||
| Gross profit | 4,733 | 1,248 | ||||||
| Research and development expenses | 2,283 | 1,483 | ||||||
| Selling and marketing expenses | 5,658 | 2,430 | ||||||
| General and administrative expenses | 4,249 | 2,588 | ||||||
| Impairment of goodwill | 569 | - | ||||||
| Contingent consideration measurement | - | (434 | ) | |||||
| Operating loss | 8,026 | 4,819 | ||||||
| Financial expense, net | 10 | 140 | ||||||
| Loss before taxes on income | 8,036 | 4,959 | ||||||
| Taxes on income | (151 | ) | (76 | ) | ||||
| Net loss for the period | (7,885 | ) | (4,883 | ) | ||||
Comparison of the six months ended June 30, 2022 to the six months ended June 30, 2021
Revenues
The following table summarizes our revenues through types and regions for the periods presented. The period-to-period comparison of results is not necessarily indicative of results for future periods.
| For the Six Month Period Ended June 30, | ||||||||
| U.S. dollars in thousands | 2022 | 2021 | ||||||
| SaaS | 5,253 | 2,796 | ||||||
| Advertising services | 3,404 | - | ||||||
| Software licenses | 28 | 118 | ||||||
| Software support services | 113 | 217 | ||||||
| Total | 8,798 | 3,131 | ||||||
Revenues through regions:
| For the Six Month Period Ended June 30, | ||||||||
| U.S. dollars in thousands | 2022 | 2021 | ||||||
| Revenues from North America | 2,039 | 1,583 | ||||||
| Revenues from Europe | 994 | 557 | ||||||
| Revenues from Asia-Pacific | 573 | 236 | ||||||
| Revenues from Middle East | 419 | 369 | ||||||
| Revenues from Rest of World | 4,773 | 386 | ||||||
| Total | 8,798 | 3,131 | ||||||
3
Total revenues for the six months ended June 30, 2022, amounted to $8,798,000, compared to $3,131,000 generated in the six months ended June 30, 2021. The increase in revenues compared to the first half of 2021 is mainly due to consumer privacy revenues generated by CyberKick Ltd., or CyberKick, following its acquisition by us on July 4, 2021, of which $3,404,000 are advertising services and $1,586,000 are SaaS revenues. The increase is attributed also to growth in the enterprise privacy SaaS revenues, from $3,667,000 in the six months ended June 30, 2022, compared to revenues of $2,796,000 in the same period in 2021. This increase was partially offset by a decrease of $194,000 in the software licenses revenues and software support services revenues in the enterprise cybersecurity segment.
Cost of Revenues and Gross Profit
The following table summarizes our cost of revenues for the periods presented, as well as presenting the gross profit as a percentage of total revenues. The period-to-period comparison of results is not necessarily indicative of results for future periods.
| For the Six Month Period Ended June 30, | ||||||||
| U.S. dollars in thousands | 2022 | 2021 | ||||||
| Traffic acquisition costs | 1,659 | - | ||||||
| Internet service providers | 742 | 900 | ||||||
| Clearing fees | 532 | - | ||||||
| Depreciation and amortization | 580 | 549 | ||||||
| Payroll and related expenses, subcontractors and share-based payment | 257 | 249 | ||||||
| Networks and servers | 281 | 140 | ||||||
| Other | 14 | 45 | ||||||
| Total cost of revenues | 4,065 | 1,883 | ||||||
| Gross profit | 4,733 | 1,248 | ||||||
| Gross profit % | 54 | % | 40 | % | ||||
Cost of revenues for the six months ended June 30, 2022, totaled $4,065,000 compared to cost of revenues of $1,883,000 for the equivalent period in 2021. The increase is primarily attributed to the consolidation of the CyberKick, which included $2,393,000 of costs for generating revenues, especially traffic acquisition costs of $1,659,000.
As a result of a higher increase in revenues compared to cost of revenues, gross profit grew by $3,485,000 to $4,733,000, representing a 279% increase during the six months ended June 30, 2022, compared to gross profit in the same period in 2021.
Research and Development Expenses, Net
The following table summarizes our research and development costs for the periods presented. The period-to-period comparison of results is not necessarily indicative of results for future periods.
| For the Six Month Period Ended June 30, | ||||||||
| U.S. dollars in thousands | 2022 | 2021 | ||||||
| Payroll and related expenses and share-based payment | 1,464 | 828 | ||||||
| Subcontractors | 581 | 449 | ||||||
| Other | 238 | 206 | ||||||
| Total research and development expenses | 2,283 | 1,483 | ||||||
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Research and development expenses for the six months ended June 30, 2022, were $2,283,000, compared to $1,483,000 for the six months ended June 30, 2021. $763,000 of the increase is attributed to the consolidation of CyberKick research and development activities.
Selling and Marketing Expenses
The following table summarizes our sales and marketing costs for the periods presented. The period-to-period comparison of results is not necessarily indicative of results for future periods.
| For the Six Month Period Ended June 30, | ||||||||
| U.S. dollars in thousands | 2022 | 2021 | ||||||
| Media costs | 2,723 | - | ||||||
| Payroll and related expenses and share-based payment | 2,024 | 1,579 | ||||||
| Professional fees | 70 | 350 | ||||||
| Marketing | 301 | 211 | ||||||
| Amortization and depreciation | 326 | 97 | ||||||
| Other | 214 | 193 | ||||||
| Total selling and marketing expenses | 5,658 | 2,430 | ||||||
Sales and marketing expenses for the six months ended June 30, 2022, totaled $5,658,000, compared to an amount of $2,430,000 for the six months ended June 30, 2021. $3,451,000 of the increase is attributed to the consolidation of CyberKick selling and marketing activities, especially $2,723,000 of media costs and $507,000 of payroll and related expenses and share-based compensation. This increase is partially offset by a $280,000 decrease in professional fees mainly due to reduction in the enterprise security operations.
General and Administrative Expenses
The following table summarizes our general and administrative costs for the periods presented. The period-to-period comparison of results is not necessarily indicative of results for future periods.
| For the Six Month Period Ended June 30, | ||||||||
| U.S. dollars in thousands | 2022 | 2021 | ||||||
| Payroll and related expenses and share-based payment | 1,114 | 960 | ||||||
| Professional fees | 2,917 | 1,477 | ||||||
| Other | 218 | 151 | ||||||
| Total general and administration expenses | 4,249 | 2,588 | ||||||
General and administrative expenses for the six months ended June 30, 2022, totaled $4,249,000, compared to $2,588,000 in the equivalent period in 2021. The increase is primarily due to a $1,531,000 increase in legal fees, in connection with intellectual property protection activities. In addition, payroll and share-based compensation increased by $154,000 mainly as a result of the consolidation of CyberKick.
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Impairment of Goodwill
We recorded an impairment loss of $569,000 in the six months ended June 30, 2022, compared to $0 impairment loss for the first half of 2021. The loss was related to NetNut Networks cash-generating-unit due to a decrease in its forecasted operating results.
Contingent Consideration Measurement
We did not record any contingent consideration measurement for the first half of 2022, compared to recording an income of $434,000 in the six month period ended June 30, 2021, due to a reduction in the fair value of the contingent consideration to the sellers of NetNut Networks Seller.
Operating Loss
As a result of the foregoing, our operating loss for the six months ended June 30, 2022 was $8,026,000, compared to an operating loss of $4,819,000 in the equivalent period in 2021.
Financial Expenses, Net
We had net financial expenses of $10,000 in the first six months of 2022, compared to net financial expenses of $140,000 for the six months ended June 30, 2021. The decrease is due to a change in the fair value of derivative financial instruments, offset by loss from short-term investments.
Net Loss for the Period
As a result of the foregoing, our net loss for the six months ended June 30, 2022, was $7,885,000, compared to a loss of $4,883,000 during the equivalent period in 2021.
Liquidity and Capital Resources
Overview
As of August 15, 2022, our cash and cash equivalents of approximately $4.5 million were held for working capital, capital expenditures, investment in technology and business acquisition purposes. It may not be sufficient to meet our anticipated cash needs for the next twelve months. Our future capital requirements will depend on many factors, including our growth rate, the timing and extent of spending to support development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced product and service offerings, the continuing market acceptance of our products and the pursuing for strategic opportunities, including, but not limited to, strategic acquisitions. These factors and the risk inherent in our operations raise a substantial doubt as to our ability to continue as a going concern.
| For the Six Month Period Ended June 30, | ||||||||
| U.S. dollars in thousands | 2022 | 2021 | ||||||
| Net cash used in operating activities | (4,949 | ) | (3,430 | ) | ||||
| Net cash provided by (used in) investing activities | 5,037 | (6,396 | ) | |||||
| Net cash provided by financing activities | 189 | 11,886 | ||||||
| Net increase in cash and cash equivalents | 277 | 2,060 | ||||||
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Net Cash Used in Operating Activities
During the six months ended June 30, 2022, net cash used in operating activities was $4,949,000, primarily attributed to cost of sales and operational costs which exceeded cash flows from customers’ payments. The increase, compared to $3,430,000 used in operating activities during the six months ended June 30, 2021, is primarily attributed to an increase in costs related to the operation of our wholly owned subsidiary, CyberKick, and costs related to legal proceedings, partially offset by lower costs in the enterprise cybersecurity segment.
Net Cash Provided by (Used in) Investing Activities
During the six months ended June 30, 2022, net cash provided by investing activities was $5,037,000, due to sale of short-term investment, compared to net cash used in investing activities of $6,396,000 during the six months ended June 30, 2021, primarily investment in short-term investments.
Net Cash Provided by Financing Activities
During the six months ended June 30, 2022, net cash provided by financing activities was $189,000, primarily attributed to funds received from short-term bank loans, in the amount of $400,000, partially offset by lease payments. The short-term bank loans were drawn out of a one-year credit line which was secured from United Mizrahi-Tefahot Bank on May 25, 2022, in a total amount of $2 million. The credit facility will be used predominantly to fund the operations and growth of our subsidiary, CyberKick, and as a result will reduce the usage of our own cash. Amounts drawn under the credit line bear interest at the Secured Overnight Financing Rate plus 5.5% per annum, to be paid quarterly for the actual withdrawn balance. The credit line offers a 3x multiple on eligible revenues, is secured against all of the assets of CyberKick., is guaranteed by us and includes a refundable deposit by us of $500,000.
During the six months ended June 30, 2021, net cash provided by financing activities was $11,886,000, primarily attributed to funds from a registered direct offering that closed on February 18, 2021, with net proceeds of approximately $9,223,000, and warrants exercises in the amount of $3,710,000.
Net Increase in Cash and Cash Equivalents
As a result of the foregoing, our cash and cash equivalents increased in the amount of $277,000 during the six months ended June 30, 2022, compared to an increase in the amount of $2,060,000 during the six months ended June 30, 2021.
Current Outlook
We have financed our operations to-date primarily through proceeds from sales of our equity securities, and recently also through a credit line (see Net Cash Provided by Financing Activities above). We have incurred losses and generated negative cash flows from operations since our inception.
On August 8, 2022, we signed a strategic funding agreement with O.R.B. Spring Ltd., or O.R.B., of up to $4,000,000 to support the further growth of our consumer privacy solutions. Under the terms of the agreement, O.R.B. will provide us with a cash commitment of $2,000,000 with an additional $2,000,000 available, subject to achievement of a certain financial milestone. The funding will be made through a series of cash installments through July 2023.
We will repay the funding using a revenue share model that is based on sales generated only from customers of the new consumer privacy solution acquired with each funding installment. Each such funding installment shall be repaid within two years and if the repayments do not cover 100% of the installments, then we will complete the remaining balances in cash or shares, at our sole discretion. Once the investment amount has been repaid in full, we and O.R.B shall share the attributed revenue in equal parts (50:50) until the lapse of five years after the date on which each installment was received by us.
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On August 10, 2022, we received the first funding installment from O.R.B in an amount of $1,000,000, as part of O.R.B’s $2,000,000 commitment. The second tranche in the amount of $1,000,000 is expected to be received on November 1, 2022.
As of August 15, 2022, our cash and cash equivalents were approximately $4.5 million. It may not be sufficient to meet our anticipated cash needs for the next twelve months. Our operating plans may change as a result of many factors that may currently be unknown to us, which may impact our funding plans. Our future capital requirements will depend on many factors, including:
| ● | the progress and costs of our research and development activities; |
| ● | the potential costs of contracting with third parties to provide marketing and distribution services for us or for building such capacities internally; |
| ● | the magnitude of our general and administrative expenses, and specifically the costs related to our legal proceedings; |
| ● | the potential earn-out payments under past acquisitions; and |
| ● | costs of future potential acquisitions. |
Until we can generate significant recurring revenues, we expect to satisfy our future cash needs through equity financings. There are no assurances however, that we will be successful in obtaining the level of financing needed for our operations. If we are unsuccessful in commercializing our products and raising capital, we may need to reduce activities, curtail or cease operations.
Research and development, patents and licenses, etc.
A comprehensive discussion of our research and development, patents and licenses, etc., is included in “Item 5. Operating and Financial Review and Prospects - Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report.
Trend Information
Among other trends, we anticipate growth in our consumer and enterprise privacy segments, as well as lower costs in our cybersecurity segment due to outsourcing of that business to TerraZone. We are also subject to potential earn-out commitments in connection with our recent acquisition of CyberKick. Further, the trajectory of the COVID-19 pandemic remains uncertain, and we cannot predict the duration and severity of the outbreak and its containment measures. Further, we cannot predict impacts, trends and uncertainties involving the pandemic’s effects on economic activity, the size of our labor force, our third-party partners, our investments in marketable securities, and the extent to which our revenue, income, profitability, liquidity, or capital resources may be materially and adversely affected. See also ”Item 3.D. – Risk Factors– Our business is subject to risks arising from the continuous effects of the COVID-19 pandemic - the risk that we may not be able to successfully execute our business or strategic plans, as well as the risk that we will not be able to anticipate, identify and respond quickly to changing market trends and customer preferences or changes in the consumer environment, including changing expectations of service, all of which could have a material adverse effect on our business and results of operations” in our Annual Report.
Critical Accounting Estimates
The preparation of financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. A comprehensive discussion of our critical accounting estimates is included in “Item 5. Operating and Financial Review and Prospects – Management’s Discussion and Analysis of Financial Condition and Results of Operations” section in our Annual Report, as well as our unaudited condensed consolidated financial statements and the related notes thereto for the six months ended June 30, 2022, included elsewhere in this Report Form 6-K.
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Exhibit 99.4
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The statements contained in this section may be deemed to be forward-looking statements within the meaning of Section 21E of the Exchange Act and Section 27A of the Securities Act. Forward-looking statements are typically identified by the words “believe,” “expect,” “anticipate,” “intend,” “estimate” and similar expressions. These forward-looking statements are based largely on management’s expectations and are subject to a number of uncertainties. Actual results could differ materially from these forward-looking statements. Neither Safe-T Ltd. (hereinafter “Safe-T” or “the Company”) nor CyberKick Ltd. (hereinafter “CyberKick”) undertake any obligation to update publicly or revise any forward-looking statements. For a more complete discussion of the risks and uncertainties, which may affect such forward-looking statements, please refer to the section entitled “Cautionary Note Regarding Forward-Looking Statements” in the Company’s Annual Report on Form 20-F for the year ended December 31, 2021, filed with the Securities and Exchange Commission (“SEC”) on March 29, 2022 (the “Annual Report”).
On July 1, 2021, the Company entered into a Share Purchase Agreement (the “SPA”) by and among Takoomi Ltd. (“Takoomi”), the shareholders of Takoomi and CyberKick, a special purpose vehicle, designated solely to facilitate the transaction, as further described herein.
Pursuant to the SPA, immediately prior to the Closing (as defined in the SPA), Takoomi agreed to transfer and assign certain assets as well as intellectual property rights (the “CyberKick Business”) to CyberKick, and accordingly, the Company agreed to purchase all of the issued and outstanding share capital of CyberKick.
On July 4, 2021, the Company completed the acquisition. Until the said date, the CyberKick Business was a part of Takoomi’s activities as described herein. The CyberKick Business provides solutions for security and privacy tools developers and consumers.
The unaudited combined condensed pro forma statement of profit or loss for the year ended December 31, 2021, combines the historical audited consolidated statement of profit or loss of the Company, including CyberKick’s operations subsequent to the acquisition date, for the year ended December 31, 2021, and the historical unaudited statement of profit or loss of the CyberKick Business for the six months ended June 30, 2021. The acquisition of CyberKick has been reflected in the Company’s historical audited consolidated statement of financial position as of December 31, 2021 and therefore, an unaudited pro forma condensed combined statement of financial position has not been presented herein.
The unaudited combined condensed pro forma statements of profit or loss for the year ended December 31, 2021, gives effect to the business combination as if it had been completed on January 1, 2021.
The final purchase price allocation for the CyberKick acquisition is included in the Company’s Annual Report on Form 20-F for the year ended December 31, 2021. The pro forma adjustments relating to the purchase price allocation for the period of January 1, 2021 through July 4, 2021 are derived from the final purchase price allocation. The unaudited pro forma combined condensed financial statements are not necessarily an indication of the results that would have been achieved had the transaction been completed as of the dates indicated or that may be achieved in the future. The unaudited pro forma combined condensed financial statements should be read in conjunction with the respective historical financial statements and the notes thereto of both the Company and the CyberKick Business, which are included in, respectively, in the Company’s Annual Report on Form 20-F for the fiscal year ended December 31, 2021, filed on March 29, 2022, and in the Company’s Report on Form 6-K filed on November 16, 2021.
Unaudited Pro Forma Combined Condensed Statement
of Profit or Loss
For the year ended December 31, 2021
(U.S. dollars in thousands, except share and per share data)
| Safe-T |
CyberKick |
Adjustments | Note | Pro forma | |||||||||||||||
| Revenues | 10,281 | 2,291 | - | 12,572 | |||||||||||||||
| Cost of revenues | 5,145 | 1,020 | 40 | (1) | 6,205 | ||||||||||||||
| Gross profit | 5,136 | 1,271 | (40 | ) | 6,367 | ||||||||||||||
| Operating expenses: | |||||||||||||||||||
| Research and development expenses | 4,771 | 655 | 1 | (1) | 5,427 | ||||||||||||||
| Selling and marketing expenses | 8,348 | 979 | 211 | (1) | 9,538 | ||||||||||||||
| General and administrative expenses | 7,013 | 52 | - | 7,065 | |||||||||||||||
| Goodwill impairment | 700 | - | - | 700 | |||||||||||||||
| Contingent consideration measurement | (684 | ) | - | - | (684 | ) | |||||||||||||
| Total operating expenses | 20,148 | 1,686 | 212 | 22,046 | |||||||||||||||
| Operating loss | (15,012 | ) | (415 | ) | (252 | ) | (15,679 | ) | |||||||||||
| Financial expenses | (121 | ) | (14 | ) | - | (135 | ) | ||||||||||||
| Financial income | 1,063 | - | - | 1,063 | |||||||||||||||
| Financial income (expenses), net | 942 | (14 | ) | - | 928 | ||||||||||||||
| Loss before taxes on income | (14,070 | ) | (429 | ) | (252 | ) | (14,751 | ) | |||||||||||
| Tax benefit (taxes on income) | 945 | (17 | ) | 50 | (3) | 978 | |||||||||||||
| Net loss for the period | (13,125 | ) | (446 | ) | (202 | ) | (13,773 | ) | |||||||||||
| Loss per ordinary share (in dollars): | |||||||||||||||||||
| Basic | (0.48 | ) | (2) | (0.47 | ) | ||||||||||||||
| Diluted | (0.48 | ) | (2) | (0.47 | ) | ||||||||||||||
| Weighted average number of ordinary shares outstanding used to compute (in thousands): | |||||||||||||||||||
| Basic | 27,106 | (2) | 29,137 | ||||||||||||||||
| Diluted | 27,106 | (2) | 29,137 | ||||||||||||||||
See Notes to Unaudited Pro forma Combined Condensed Financial Statements
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Notes to Unaudited Pro forma Combined Condensed Financial Statements
On July 1, 2021, the Company entered into a Share Purchase Agreement (the “SPA”) by and among Takoomi Ltd. (“Takoomi”), the shareholders of Takoomi and CyberKick Ltd. (“CyberKick”), a special purpose vehicle, designated solely to facilitate the transaction, as further described herein.
Pursuant to the SPA, immediately prior to the Closing (as defined in the SPA), Takoomi agreed to transfer and assign certain assets as well as intellectual property rights (the “CyberKick Business”) to CyberKick, and accordingly, the Company agreed to purchase all of the issued and outstanding share capital of CyberKick.
On July 4, 2021, the Company completed the acquisition. Until the said date, the CyberKick Business was a part of Takoomi’s activities as described herein. The CyberKick Business provides solutions for security and privacy tools developers and consumers.
The purchase price was estimated at $9,508 thousand and has been calculated and assigned to the net tangible and intangible assets acquired as follows:
| U.S. in thousands | ||||
| Purchase price calculation: | ||||
| Cash consideration | 3,700 | |||
| Share consideration* | 5,808 | |||
| Total purchase price | 9,508 | |||
| * | Issuance of 4,062,045 ordinary shares based on Safe-T’s market price per share of approximately $1.43 (closing price on the Tel Aviv Stock Exchange as of July 4, 2021, translated into U.S. dollars) |
| The fair values of the identifiable assets and liabilities: | ||||
| Property and equipment, net | 2 | |||
| Technologies | 792 | |||
| Customer relations | 3,228 | |||
| Deferred tax liabilities | (825 | ) | ||
| Total identifiable net assets at fair value | 3,197 | |||
| Goodwill | 6,311 | |||
| Total purchase price | 9,508 | |||
The consideration may be increased by an additional earn-out payment of up to $3 million to CyberKick founders, subject to certain revenue targets of CyberKick during the first and second year following the closing of the transaction, provided that the entitlement shall be only of the founders who are still engaged by CyberKick at such time. The Company may decide, at its sole discretion, to pay the earn-out consideration in equity, in whole or in part.
The unaudited combined condensed pro forma statement of profit or loss for the year ended December 31, 2021, gives effect to the business combination as if it had been completed on January 1, 2021. The unaudited combined condensed pro forma statement of profit or loss does not include any non-recurring charges, directly attributable to the business combination.
Adjustments to unaudited combined condensed pro forma statement of profit or loss for the year ended December 31, 2021.
(1) Amortization and depreciation of assets acquired in connection with the business combination. Intangible assets are amortized on a straight-line basis over the following number of years: Technologies – 10 years, which such amortization recorded under cost of revenues; Customer relations – 2 - 8 years, which such amortization recorded under selling and marketing expenses.
(2) The calculation of the weighted average number of shares for pro forma loss per share gives effect to the issuance of 4,062,045 Company ordinary shares in the transaction assuming these were issued on January 1, 2021.
(3) Reflects the tax effect of the pro forma adjustments, using the applicable tax rates.
3