NOTES TO FINANCIAL STATEMENTS
NOTE
1 - GENERAL:
|
|
a.
|
NetNut
Ltd. (hereinafter - the “Company”) was incorporated in Israel on February 8, 2017 and is a subsidiary of DiViNetworks
Ltd.
|
|
|
b.
|
The
Company is engaged in the business of the development, marketing and sale of business proxy network services.
|
|
|
c.
|
The
Company has an accumulated deficit as of December 31, 2018, as well as negative operating cash flows for the year ended December
31, 2018 and for the period from February 8, 2017 (date of commencement of operation) to December 31, 2017. Therefore, there is
substantial doubt about the Company’s ability to continue as a going concern. These 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 further disclosed in Note 17, the Company has entered into an agreement, under which it is to be acquired
by Safe-T Group Ltd. In accordance with the agreement, the Company has obtained an amount of $250 thousand to fund its operations.
|
NOTE
2 - SIGNIFICANT ACCOUNTING POLICIES:
|
|
a.
|
Basis
of presentation of financial statements:
|
The
financial statements as of December 31, 2018 and 2017, and for the year ended December 31, 2018 and for the period from February
8, 2017 (date of commencement of operations) to December 31, 2017, are in compliance with International Financial Reporting Standards
(hereinafter - “IFRS”), and interpretations issued by the IFRS Interpretations Committee applicable to companies reporting
under IFRS. The financial statements comply with IFRS as issued by the International Accounting Standards Board.
In
connection with the presentation of these financial statements, the following should be noted:
|
|
1)
|
The
significant accounting policies described below have been applied consistently to the year and period presented, unless otherwise
stated.
|
|
|
2)
|
The
financial statements have been prepared under the historical cost convention.
|
|
|
3)
|
The
preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also
requires the Company’s management to exercise its judgment in the process of applying the Company’s accounting policies.
Actual results may differ materially from estimates and assumptions used by management.
|
|
|
4)
|
The
Company analyzes the expenses recognized in the statements of profit or loss using the classification method based on the functional
category to which the expense belongs.
|
|
|
b.
|
Translation
of foreign currency balances and transactions:
|
|
|
1)
|
Functional
and presentation currency.
|
Items
included in the financial statements are measured using the currency of the primary economic environment in which the entity operates
(hereinafter - the “Functional Currency”). The financial statements of the Company are presented in U.S. dollars,
which is the Company’s Functional Currency.
|
|
2)
|
Transactions
and balances
|
Transactions
made in a currency which is different from the Functional Currency are translated into the Functional Currency using the exchange
rates prevailing at the dates of the transactions or valuations where the items are re-measured. Foreign exchange gains and losses
resulting from the settlement of such transactions and from the translation at the end-of-year exchange rates of monetary assets
and liabilities denominated in foreign currencies are recognized in profit or loss as finance income (expense).
NETNUT LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE
2 - SIGNIFICANT ACCOUNTING POLICIES
(continued):
|
|
c.
|
Cash
and cash equivalents
|
Cash
and cash equivalents include cash in hand, short-term bank deposits and other short-term highly liquid investments with original
maturities of three months or less, which are subject to insignificant risk of changes in value.
The
trade receivable balance represents the unconditional right to consideration because only the passage of time is required before
the payment is due from Company customers in the ordinary course of business.
Trade
receivables are recognized initially based on their transaction price as calculated according to IFRS 15, less a provision for
doubtful accounts (hereinafter - “Provision for Impairment” or “Provision for Doubtful Accounts”). For
further details see Note 4.
Goodwill
arising from a business combination represents the excess of the overall amount of the consideration transferred over the net
amount as of acquisition date of the identifiable assets acquired and the liabilities assumed.
Impairment
reviews of the cash-generating-unit (CGU) to which goodwill was allocated are undertaken annually and whenever there is any indication
of impairment of a CGU. The carrying amount of the Company’s assets (which constitutes a single CGU), including goodwill,
is compared to its recoverable amount, which is the higher of value in use and the fair value less costs to sell. Any impairment
loss is allocated to reduce the carrying amount of the Company’s assets at the following order: first to reduce the carrying
amount of any goodwill allocated to a CGU and subsequently to the remaining assets of the Company, which fall within the scope
of IAS 36, on a proportionate basis based on the carrying amount of each Company asset.
Any
impairment loss is recognized immediately in profit or loss and is not subsequently reversed. As of December 31, 2018 and 2017,
the Company did not record impairment of goodwill. For further details see Note 5.
|
|
1)
|
Research
and development
|
Through
December 31, 2018 and 2017, the Company has not met the criteria for capitalizing of research and development expenses as intangible
assets, and accordingly, no asset has so far been recognized in the financial statements in respect of capitalized research and
development expenses. Consequently, the research and development expenses of the Company are fully recognized as incurred.
The
server usage right was first recognized at fair value at the acquisition date and is amortized over the period of estimated benefit,
using a straight-line method and estimated useful life of four years. The amortization is presented under cost of revenues. For further details see Note 5.
NETNUT LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE
2 - SIGNIFICANT ACCOUNTING POLICIES
(continued):
|
|
g.
|
Impairment
of non-monetary assets
|
An
impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable
amount is the higher of an asset’s fair value less selling costs and value in use. For the purposes of assessing impairment,
assets are grouped at the lowest levels of identifiable cash flows (cash-generating units). As mentioned above, the Company constitutes
a single cash generating unit. Non-monetary assets, other than goodwill, that were previously impaired are reviewed at each statement
of financial position date for possible reversal of the impairment recognized. Other intangible assets, whose useful life is indefinite,
are tested annually for impairment.
|
|
h.
|
Financial
assets and liabilities:
|
The Company has adopted IFRS 9,
“Financial Instruments”, from February 8, 2017 (date of commencement of operations).
The
Company classifies its financial assets at amortized cost. The classification is determined, among other things, in accordance
with the purpose for which the financial assets were acquired. The basis of classification depends on the Company’s business
model and the contractual cash flow characteristics of the financial asset.
Financial
assets at amortized cost are held within a business model whose objective is to hold financial assets in order to collect contractual
cash flows, and their contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest
on the principal amount outstanding. These assets are classified as current assets, except for maturities of more than 12 months
after the balance sheet date, which are classified as non-current assets. The Company’s financial assets at amortized cost include
“accounts receivable” and “cash and cash equivalents” (see also sections c and d above).
|
|
2)
|
Impairment
of financial assets, measured at amortized cost
|
The
Company recognizes an allowance for expected credit losses on financial assets. At each reporting date, the Company assesses whether
the credit risk on a financial asset has increased significantly since the initial recognition.
If
the financial asset is determined to have low credit risk at the reporting date, the Company assumes that the credit risk on a
financial asset has not increased significantly since initial recognition. The Company measures the allowances for expected credit
losses on trade receivables that are within the scope of IFRS 15, “Revenue from Contracts with Customers”, and on
financial assets for which the credit risk has increased significantly since initial recognition based on the estimated lifetime
credit losses. Otherwise, the Company measures the allowance for credit losses at an amount equals to 12-month expected credit
losses at the current reporting date.
Trade
payables are the Company’s obligations to pay for goods or services that have been acquired in the ordinary course of business
from suppliers.
NETNUT LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE
2 - SIGNIFICANT ACCOUNTING POLICIES
(continued):
|
|
j.
|
Current
and deferred income taxes
|
The
tax expenses for the reported years comprise current and deferred taxes. Taxes are recognized in the statements of profit or loss,
except to the extent that they relate to items recognized directly in equity. In that case, the tax is also recognized in equity.
The
current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date
in the countries where the Company operates and generates taxable income. The Company’s management periodically evaluates
the tax aspects applicable to its taxable income based on the relevant tax laws and makes provisions in accordance with the amounts
payable to the Israeli Tax Authorities.
Deferred
income tax is provided using the liability method, on temporary differences arising between the tax bases of assets and liabilities
and their carrying amounts in the financial statements.
However,
deferred income tax liabilities are not accounted for if they arise from initial recognition of goodwill. Also, deferred income
tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business
combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is
determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected
to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled.
Deferred
tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the
temporary differences can be utilized.
|
|
1)
|
Severance
pay and pension obligations
|
A
defined contribution plan is a post-employment benefits scheme under which group companies pay fixed contributions into a separate
and independent entity. The Company has no legal or constructive obligation to pay further contributions if the fund does not
hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods.
The
Company’s severance pay and pension obligations are generally funded through payments to insurance companies or trustee-administered
funds. Under their terms, the said pension plans meet the criteria for defined contribution plan as above.
|
|
2)
|
Vacation
and recreation pay
|
Every
employee is legally entitled to vacation and recreation benefits, which are computed on an annual basis. This entitlement is based
on the term of employment. The Company charges a liability and expense due to vacation and recreation pay, based on the benefits
that have been accumulated for each employee.
Since
the Company expects that the benefit arising from vacation pay will be fully settled within 12 months of the end of the reporting
period in which the employees provide the relating services, the liability in respect of this benefit is measured in accordance
with the additional amount, which the Company expects to pay for unutilized vacation benefits accrued at the end of the reporting
period.
NETNUT LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE
2 - SIGNIFICANT ACCOUNTING POLICIES
(continued):
Severance
pay is paid when an employee is terminated by the Company before the normal retirement date, or when an employee had agreed to
accept voluntary redundancy in exchange for these benefits. The Company recognizes severance pay liabilities at the earlier of:
|
|
●
|
When
the entity can no longer withdraw the offer of those benefits; and
|
|
|
●
|
When
the entity recognizes costs for a restructuring in the scope of IAS 37, “Provisions,
Contingent Liabilities and Contingent Assets”, that includes the payment of severance
benefits.
|
The Company has adopted IFRS
15, “Revenue from Contracts with Customers” (hereinafter - “IFRS 15”) from February 8, 2017 (date of commencement
of operations).
IFRS 15 provides two approaches
to revenue recognition: one point in time or over time. The model framework consists of five steps for analyzing transactions to
determine the timing and amount of revenue recognition.
|
|
Identify
the contract with the customer.
|
|
|
Identify
the separate performance obligations in the contract.
|
|
|
Determine
the transaction price.
|
|
|
Allocate
the transaction price to each of the performance obligations in the contract.
|
|
|
Recognize
revenue as each performance obligation is satisfied, while making a distinction between
satisfying an obligation on a certain date and satisfying an obligation over time.
|
The
Company’s revenues from its renewable monthly contracts with its customers are recognized ratably over the respective contract
periods, since the customers consume benefits from the services as the Company performs.
Costs
to obtain a contract are expensed as incurred since commissions payable upon renewals are commensurate with the initial commission.
Revenue
is recognized net of Value Added Tax.
|
|
m.
|
standards, amendments and interpretations to new standards:
|
Standards,
amendments and interpretations to new standards that are not yet effective and have not been early adopted by the Company:
|
|
1)
|
IFRS
16, “Leases” (hereinafter - “IFRS 16”)
|
IFRS
16 will replace upon first-time implementation the existing guidance in IAS 17 “Leases” (hereinafter - “IAS 17”).
The standard sets out the principles for the recognition, measurement, presentation and disclosure of leases, and is expected
to have material impact mainly on the accounting treatment applied by the lessee in a lease transaction.
IFRS
16 changes the existing guidance in IAS 17 and requires lessees to recognize a lease liability that reflects future lease payments
and a “right-of-use asset” in all lease contracts (except for the following), with no distinction between financing
and capital leases. IFRS 16 exempts lessees in short-term leases or the when underlying asset has a low value.
NETNUT LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE
2 - SIGNIFICANT ACCOUNTING POLICIES
(continued):
IFRS
16 substantially carries forward the lessor accounting requirements in IAS 17. Accordingly, a lessor continues to classify its
leases as operating leases or finance leases, and to account for those two types of leases differently.
IFRS
16 also changes the definition of a “lease” and the manner of assessing whether a contract contains a lease.
IFRS
16 will be effective retrospectively for annual periods beginning on or after January 1, 2019, taking into account the reliefs
specified in the transitional provisions of IFRS 16.
In
respect of agreements in which the Company is the lessee, the Company elected to apply the standard for the first time by
recognizing lease liabilities, for leases that were previously classified as operating leases, based on the present value of
the remaining lease payments, discounted at the incremental interest rate of the lessee as at the date of first-time
application. At the same time, the Company will recognize a right-of-use asset at an amount equal to the amount of the lease
liabilities, adjusted to reflect any prepaid or accrued lease payments in respect of those leases. As a result, the
application of the standard is not expected to have an effect on the retained earnings balance.
As
part of the first-time application of the standard, the Company has elected to apply the following practical expedients:
In
respect of leases in which the Company is the lessee, to apply a single discount rate to a portfolio of leases with reasonably
similar characteristics.
For
leases in which the Company is the lessee, not to recognize a right-of-use asset and a lease liability in respect of leases whose
lease period ends within 12 months of the date of initial application.
For
leases in which the Company is the lessee, to exclude initial direct costs from the measurement of the right-of-use asset upon
initial application.
For
leases in which the Company is the lessee, to use hindsight in determining the lease term where the contract includes extension
or termination options.
Furthermore,
it should be noted that the Company elected to apply the exemption regarding the recognition of short-term leases and leases in
which the value of the underlying asset is low.
Where
the Company has right-of-use assets which meets the definition of investment property, they should be presented in the statement
of financial position as investment property. Furthermore, right-of-use assets, that will be accounted for as investment property
according to the fair value model, will be measured at fair value upon initial application. This measurement may impact the retained
earnings balance as of the date of initial recognition.
Based
on its assessment to date, upon application of IFRS 16 on January 1, 2019, right-of-use lease assets and lease liabilities totalling
approximately $439 thousand will be recognized in the balance sheet.
The
main expected effects of the application of the standard on the statement of income or loss for the year 2019 are a decrease of
approximately $107 thousand in lease expenses, an increase of $91 thousand in depreciation costs and an increase of approximately
$7 thousand in financing expenses. Overall, the expected effect of the standard’s application on the statement of income
or loss for the year 2019 is an increase of approximately $9 thousand in loss.
NETNUT LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE
2 - SIGNIFICANT ACCOUNTING POLICIES
(continued):
|
|
2)
|
IFRIC
23, “Uncertainty Over Income Tax Treatments” (hereinafter - “IFRIC 23”)
|
IFRIC
23 clarifies how to apply the recognition and measurement requirements of IAS 12 for uncertainties in income taxes. According
to IFRIC 23, when determining the taxable profit (loss), tax bases, unused tax losses, unused tax credits and tax rates when there
is uncertainty over income tax treatments, the entity should assess whether it is probable that the tax authority will accept
its tax position. Insofar, as it is probable that the tax authority will accept the entity’s tax position, the entity will
recognize the tax effects on the financial statements according to that tax position. On the other hand, if it is not probable
that the tax authority will accept the entity’s tax position, the entity is required to reflect the uncertainty in its accounts
by using one of the following methods: the most likely outcome or the expected value. IFRIC 23 clarifies that when the entity
examines whether or not it is probable that the tax authority will accept the entity’s position, it is assumed that the
tax authority with the right to examine any amounts reported to it will examine those amounts and that it has full knowledge of
all relevant information when doing so. Furthermore, according to IFRIC 23 an entity has to consider changes in circumstances
and new information that may change its assessment. IFRIC 23 also emphasizes the need to provide disclosures of the judgments
and assumptions made by the entity regarding uncertain tax positions.
IFRIC
23 is effective for annual reporting periods beginning on or after January 1, 2019. The application of this standard is expected
to have negligible impact on the Company’s financial statements.
NOTE
3 - FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT:
|
|
a.
|
Financial
risk management
|
Financial
risk factors - foreign exchange risks
The
Company’s activities expose it to a Foreign exchange risk.
The
Company operates internationally and is exposed to foreign exchange risk arising from foreign currency transactions, primarily
with respect to the NIS. Foreign exchange risk arises from future commercial transactions, recognized assets and liabilities denominated
in foreign currency.
The
Company hedges and minimizes the foreign exchange risk by ensuring that the amounts of net current assets at a specific point
in time correspond to the amount of current liabilities at that point in time.
|
|
|
Financial assets at amortized cost
|
|
|
|
|
December 31
|
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
U.S. dollars in thousands
|
|
|
Assets:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
16
|
|
|
|
82
|
|
|
Trade and other receivables
|
|
|
183
|
|
|
|
121
|
|
|
|
|
|
199
|
|
|
|
203
|
|
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.
NOTE
4 - ACCOUNT RECEIVABLES - TRADE, net
As
of December 31, 2018 and 2017, the account receivables-trade balance comprises open accounts. The Company did not record a provision
for doubtful accounts as of December 31, 2018 and 2017.
NETNUT LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - INTANGIBLE ASSETS:
|
|
a.
|
Composition of intangible assets is as follows:
|
|
|
|
Cost
|
|
|
Accumulated
amortization
|
|
|
|
|
|
|
|
Balance
at
beginning
|
|
|
Additions
during
|
|
|
Retirements
during the
|
|
|
Balance
at
end
|
|
|
Balance
at
beginning
|
|
|
Additions
during
|
|
|
Retirements
during the
|
|
|
Balance
at
end
|
|
|
Amortized
balance
December 31,
|
|
|
|
|
of
year
|
|
|
the
year
|
|
|
year
|
|
|
of
year
|
|
|
of
year
|
|
|
the
year
|
|
|
year
|
|
|
of
year
|
|
|
2018
|
|
|
|
|
U.S.
dollar in thousand
|
|
|
2018:
|
|
|
|
|
Servers
usage right
|
|
|
213
|
|
|
|
-
|
|
|
|
-
|
|
|
|
213
|
|
|
|
(46
|
)
|
|
|
(53
|
)
|
|
|
-
|
|
|
|
(99
|
)
|
|
|
114
|
|
|
Goodwill
|
|
|
337
|
|
|
|
-
|
|
|
|
-
|
|
|
|
337
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
337
|
|
|
|
|
|
550
|
|
|
|
-
|
|
|
|
-
|
|
|
|
550
|
|
|
|
(46
|
)
|
|
|
(53
|
)
|
|
|
-
|
|
|
|
(99
|
)
|
|
|
451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
Accumulated
amortization
|
|
|
|
|
|
|
|
Balance
at
Beginning
|
|
|
Additions
|
|
|
Retirements
|
|
|
Balance
|
|
|
Balance
at
Beginning
|
|
|
Additions
|
|
|
Retirements
|
|
|
Balance
|
|
|
Amortized
balance
|
|
|
|
|
of
|
|
|
during
the
|
|
|
during
the
|
|
|
at
end
|
|
|
of
|
|
|
during
the
|
|
|
during
the
|
|
|
at
end
|
|
|
December 31,
|
|
|
|
|
period
|
|
|
period
|
|
|
period
|
|
|
of
year
|
|
|
period
|
|
|
period
|
|
|
Period
|
|
|
of
year
|
|
|
2017
|
|
|
|
|
U.S.
dollar in thousand
|
|
|
2017:
|
|
|
|
|
Servers
usage right
|
|
|
-
|
|
|
|
213
|
|
|
|
-
|
|
|
|
213
|
|
|
|
-
|
|
|
|
(46
|
)
|
|
|
-
|
|
|
|
(46
|
)
|
|
|
167
|
|
|
Goodwill
|
|
|
-
|
|
|
|
337
|
|
|
|
-
|
|
|
|
337
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
337
|
|
|
|
|
|
-
|
|
|
|
550
|
|
|
|
-
|
|
|
|
550
|
|
|
|
|
|
|
|
(46
|
)
|
|
|
-
|
|
|
|
(46
|
)
|
|
|
504
|
|
|
|
b.
|
Testing of goodwill impairment
|
As of December 31, 2018 and
2017, the recoverable amount of the Company, which constitutes a single CGU, is calculated on the basis of its fair value less
cost to sell of Company’s share. As of December 31, 2018 and 2017, the recoverable amount exceeded the Company’s equity.
The Company’s value in use calculations included a pre-tax discount rate of 24.5% and 26.9% at December 31, 2017 and 2018,
respectively, and a long-term growth rate of 2% as of both dates.
NETNUT LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 6 - BUSINESS COMBINATION
On February 22, 2017, the Company has completed the business combination deal with a significant shareholder.
As part of the business combination the company issued 100,000 ordinary shares to its parent company for the purpose of the acquisition
of a developed technology including the usage right in servers of the parent company as well as access to the parent company’s
vendors and the right to implement the parent company’s business model in the Company’s operation. The server usage
right is valid as well the Company is active, with no further payments, and include the installation right on the Company’s
premises. The value of the ordinary shares issued in the business combination were based on the sale of ordinary A shares to a
third party occurring concurrently with the business combination, see also Note 11(b). The acquisition was accounted for as a business
combination under common control, at fair value, considering the indirect involvement of such third party in the transaction.
The fair value of the server’s
usage right was computed according to the DCF model, using the following principal assumptions: WACC 20.5% and long term growth
rate of 2%. For the Company fair value valuation, the Company used Option-Pricing Method with the following principal assumptions:
expected volatility of 65.6%, risk-free interest of 2.47%, expected term of 5 years.
The table
below presents the fair value of offered shares and the amounts recorded in these financial statements:
|
|
|
Fair Value
|
|
|
|
|
U.S. dollars in thousands
|
|
|
|
|
|
|
|
Total purchase price - issuance of shares
|
|
|
501
|
|
|
|
|
|
|
|
|
Intangible assets:
|
|
|
|
|
|
Servers usage right
|
|
|
213
|
|
|
Goodwill
|
|
|
337
|
|
|
|
|
|
550
|
|
|
Deferred taxes
|
|
|
(49
|
)
|
|
Total assets
|
|
|
501
|
|
NOTE 7 - TAXES ON INCOME:
The income of the Company is taxed
at the regular corporate tax rate which is 24% for 2017 and 23% for the year 2018 and thereafter.
The Company has not been assessed
since its establishment.
|
|
c.
|
Carryforward tax losses
|
As of December 31, 2018 and 2017
the Company’s carryforward tax losses totaled to approximately $518 thousand and $301 thousand, respectively.
Deferred tax assets in respect
of carryforward operating tax losses are recognized in case that it is expected that the relating tax benefit would be realized
against a future taxable income.
The Company did not recognize
deferred taxes for these losses since their utilization is not expected in the foreseeable future.
NETNUT LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 7 - TAXES ON INCOME
(continued):
|
|
d.
|
Theoretical tax reconciliation
|
A reconciliation of the theoretical
tax expense, assuming all income is taxed at the regular tax rates applicable to companies in Israel (see section a above) and
the actual tax expense is as follows:
|
|
|
Year ended
December 31, 2018
|
|
|
Period from
February 8, 2017* to
December 31, 2017
|
|
|
|
|
%
|
|
|
US dollars in thousands
|
|
|
%
|
|
|
US dollars in thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before taxes on income, as reported in the statements of profit or loss
|
|
|
100
|
|
|
|
277
|
|
|
|
100
|
|
|
|
350
|
|
|
Theoretical tax saving on this profit or loss
|
|
|
(23
|
)
|
|
|
(64
|
)
|
|
|
(24
|
)
|
|
|
(84
|
)
|
|
Increase in taxes resulting from permanent differences - non-deductible expenses
|
|
|
3
|
|
|
|
7
|
|
|
|
-
|
|
|
|
1
|
|
|
Increase in taxes resulting from tax losses in the reported period for which deferred taxes were not recognized
|
|
|
20
|
|
|
|
57
|
|
|
|
10
|
|
|
|
34
|
|
|
Tax expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
(14
|
)
|
|
|
(49
|
)
|
NOTE 8 - ACCOUNTS PAYABLE - OTHER:
|
|
|
December 31
|
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
U.S dollars in thousands
|
|
|
|
|
|
|
|
Employees and related institutions
|
|
|
110
|
|
|
|
47
|
|
|
Accrued commissions
|
|
|
7
|
|
|
|
4
|
|
|
|
|
|
117
|
|
|
|
51
|
|
NOTE 9 - COMMITMENTS:
|
|
a.
|
Office Lease agreements
|
In May 2018, the Company signed
an operating lease agreement for a period of 5 years starting on October 20, 2018.
The minimal future lease fees,
which are payable under the said leases agreement are:
|
For the year ended December 31:
|
|
U.S dollars in thousands
|
|
|
2019
|
|
|
107
|
|
|
2020
|
|
|
130
|
|
|
2021
|
|
|
130
|
|
|
2022
|
|
|
130
|
|
|
2023
|
|
|
105
|
|
In 2017 the Company entered into
an agreement with its shareholders, according to which the company will pay its shareholders an annual commissions in the amount
of 15% of paid revenues for new customers who joined prior to December 31, 2018. The agreement has no expiration date and the eligibility
for commission is in valid as long as there are active customers who joined prior to December 31, 2018.
|
|
*
|
Date of commencement of operations
|
NETNUT LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 10 - RETIREMENT BENEFITS OBLIGATION:
|
|
a.
|
Liability for employee rights upon retirement
|
Labor
laws and agreements require the Company to pay severance pay and/or pensions to employees dismissed or retiring from their employ
in certain other circumstances. The amounts of benefits those employees are entitled to upon retirement are based on the number
of years of service and the last monthly salary.
Also, under labor laws and
labor agreements in effect, including the Expansion Order (Combined Version) for Obligatory Pension under the Collective Agreements
Law of 1957 (hereinafter - the “Expansion Order”), The Company is liable to make deposits with provident funds, pension
funds or other such funds (hereinafter – the “Funds”) so as to cover its employees’ pension insurance as
well as some of its severance pay liabilities.
Under the terms of the Expansion
Order, the Company deposits for severance pay as required under the Expansion Order as well as other deposits made by those companies
“in lieu of severance pay” and which were announced as such as required under the Expansion Order, replace all payment
of severance pay under Section 14 of the Severance Pay Law with respect to the wages, components, periods and rates for which the
deposit alone was made (hereinafter - “Deposits under Section 14”).
|
|
b.
|
Defined contribution plans
|
The Company’s
severance pay liability to Israeli employees for which the said liability is covered under section 14 of the Severance Pay Law
is covered by regular deposits with defined contribution plans. The amounts funded as above are not reflected in the statements
of financial position.
The
amounts recognized as expense in respect of defined contribution plans in 201
8
and
2017 are $12 thousand and $5 thousand, respectively.
NOTE 11 - EQUITY:
As of December
31, 2018 and 2017, the Company’s share capital is composed as follows:
|
|
|
Number of shares
|
|
|
|
|
Authorized
|
|
|
Issued and paid
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
Ordinary A shares 0.01 NIS par value
|
|
|
25,000
|
|
|
|
25,000
|
|
|
|
25,000
|
|
|
|
25,000
|
|
|
Ordinary shares 0.01 NIS par value
|
|
|
975,000
|
|
|
|
975,000
|
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
b.
|
Issuance of share capital
|
In February
22, 2017, in connection with the formation of the Company and the related business combination detailed in Note 6, the Company
engaged in an agreement for a private issuance of shares. Under the agreement, the Company issued 25,000 Ordinary A shares
0.01 NIS par value for total gross proceeds of $300,000, representing price per ordinary A share of $12.
NETNUT LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 11 - SHAREHOLDERS’ EQUITY
(continued):
|
|
c.
|
Rights conferred by shares:
|
The ordinary shares confer
upon their holders voting rights, the right to receive dividends, the right to a share in excess assets upon liquidation of the
Company and other rights as set out in the Company’s articles of association (hereafter- the “Articles of Association”).
The ordinary A shares confer
upon their holders all rights conferred to ordinary shareholders and in the event of a dissolution or liquidation (including deemed
liquidation) of the Company, or distribution of dividends, the dividends, assets or other distributable proceeds available for
distribution to the Company’s shareholders (the “Distributable Proceeds”) will be distributed amongst the shareholders
in the following order of priority:
First, the holders of Ordinary
A Shares shall be entitled to receive from the Distributable Proceeds, prior to and in preference to the holders of Ordinary Shares
of the Company, for each Ordinary A Share held by them, an amount equal to the Original Issue Price for such Ordinary A Share (the
“Preference Amount”).
Second, after receiving the
Preference Amount, the remaining Distributable Proceeds shall be distributed between all the Company’s shareholders (both
Ordinary Shareholders and Ordinary A Shareholders) on a pro rata basis.
NOTE 12 - COST OF REVENUES
|
|
|
Year ended December 31,
|
|
|
Period from February 8, 2017* to December 31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
U.S dollars in thousands
|
|
|
Cost of networks and servers
|
|
|
609
|
|
|
|
195
|
|
|
Amortization of intangible assets
|
|
|
53
|
|
|
|
46
|
|
|
|
|
|
662
|
|
|
|
241
|
|
NOTE 13 - RESEARCH AND DEVELOPMENT EXPENSES
|
|
|
Year ended December 31
|
|
|
Period from February 8, 2017* to December 31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
U.S dollars in thousands
|
|
|
Payroll and related expenses
|
|
|
84
|
|
|
|
46
|
|
|
Consulting
|
|
|
359
|
|
|
|
394
|
|
|
|
|
|
443
|
|
|
|
440
|
|
|
|
*
|
Date of commencement of operations
|
NETNUT LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 14 - SELLING AND MARKETING EXPENSES
|
|
|
Year ended December 31,
|
|
|
Period from February 8, 2017* to December 31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
U.S. dollars in thousands
|
|
|
Payroll and related expenses
|
|
|
400
|
|
|
|
150
|
|
|
Consulting
|
|
|
32
|
|
|
|
56
|
|
|
Commissions
|
|
|
348
|
|
|
|
125
|
|
|
Other
|
|
|
7
|
|
|
|
2
|
|
|
|
|
|
787
|
|
|
|
333
|
|
NOTE 15 - GENERAL AND ADMINISTRATIVE EXPENSES
|
|
|
Year ended December 31,
|
|
|
Period from February 8, 2017* to December 31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
U.S. dollars in thousands
|
|
|
Professional fees
|
|
|
344
|
|
|
|
114
|
|
|
Payroll and related expenses
|
|
|
3
|
|
|
|
-
|
|
|
Depreciation
|
|
|
2
|
|
|
|
-
|
|
|
Other
|
|
|
164
|
|
|
|
13
|
|
|
|
|
|
513
|
|
|
|
127
|
|
NOTE 16 - RELATED PARTIES
TRANSACTIONS AND BALANCES:
“Related
Parties” - As defined in IAS 24.
Key management
personnel - included together with other entities in the said definition of “related parties” in IAS 24, include the
members of the Board of Directors and senior executives.
|
|
a.
|
Transactions with related parties:
|
|
|
1)
|
Compensation to related parties:
|
|
|
|
Year ended December 31,
|
|
|
Period from February 8, 2017* to December 31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
U.S dollars in thousands
|
|
|
Management fees, consulting fees and bonuses to interested parties
|
|
|
354
|
|
|
|
141
|
|
|
Commissions to shareholders
|
|
|
332
|
|
|
|
121
|
|
|
|
2)
|
Compensation to key
management personnel for work services they provide to the Company is as follows:
|
|
|
|
Year ended December 31,
|
|
|
Period from February 8, 2017* to December 31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
U.S. dollars in thousands
|
|
|
Management fees
|
|
|
353
|
|
|
|
141
|
|
|
Commissions
|
|
|
189
|
|
|
|
69
|
|
|
|
|
|
542
|
|
|
|
210
|
|
|
|
*
|
Date of commencement of operations
|
NETNUT LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 16 - RELATED PARTIES
TRANSACTIONS AND BALANCES
(continued):
|
|
b.
|
Balances with related parties:
|
|
|
|
December 31
|
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
U.S dollars in thousands
|
|
|
Assets:
|
|
|
|
|
|
|
|
Receivables from parent company and its subsidiary
|
|
|
111
|
|
|
|
39
|
|
|
Receivables from shareholders
|
|
|
-
|
|
|
|
14
|
|
|
|
|
|
111
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Accrued management fees
|
|
|
18
|
|
|
|
-
|
|
|
Accrued commissions
|
|
|
112
|
|
|
|
60
|
|
|
|
|
|
130
|
|
|
|
60
|
|
|
|
c.
|
Other transactions with related parties:
|
During 2018 and 2017, the Company
recorded an amounts of approximately $669 thousand and $379 thousand, respectively, to the parent company in respect of participation
in operations expenses, paid originally by the parent company.
NOTE 17 - SUBSEQUENT EVENTS:
|
|
a.
|
Share and Asset Purchase Agreement
|
On April 4, 2019, the Company entered
into a share and asset purchase agreement, or the Share and Asset Purchase Agreement, with Safe-T Group Ltd., or Safe-T, pursuant
to which Safe-T will acquire all (100%) of the fully diluted share capital of the Company, or the Purchased Shares, and certain
assets of DiViNetworks Ltd., or DiVi, Company’s controlling shareholder, which assets are required for the ongoing operations of
the Company, or the Purchased Assets and the Transaction, respectively. The consideration for the Transaction will be paid in cash
and with Safe-T’s ordinary shares, as set forth below.
The maximum purchase price payable
by Safe-T for the Purchased Shares and Purchased Assets is up to $14.7 million, subject to certain adjustments, all as set forth
below:
In consideration for the Purchased
Shares, Safe-T we will pay to the Company shareholders:
|
|
●
|
An amount equal to $3,400,000, or the
Initial Shares Purchase Price, out of which (i) a $1,614,742 will be paid on the closing of the Transaction, or the Closing, in
immediate funds (In addition to an amount of $250,000 down payment paid by Safe-T upon signing of Share and Asset Purchase Agreement);
(ii) $175,257 will be deposited in escrow (as set forth below); and (iii) $1,360,000 will be paid by issuance of 24,347,410 Safe-T’s
ordinary shares (based on price per share of NIS 0.2031 which is a per share 30-day average price of Safe-T’s ordinary shares on
the TASE prior to the date on which the Share and Asset Purchase Agreement was signed, or the Initial Consideration PPS). The Initial
Shares Purchase Price was determined based on an assumption that the Company’s working capital on the Closing is equal to zero.
The parties agreed that the Initial Shares Purchase Price may be increased or decreased on a dollar-for-dollar basis in the event
that the Company has a positive or negative working capital (respectively) on the date of the Closing.
|
|
|
●
|
An amount of up to $5,000,000 payable in contingent consideration
,
or the EarnOut Amount, will be paid and distributed to the shareholders of the Company subject and upon the Company achieving certain
revenue milestones in 2019, hence, the payment of the payable EarnOut Amount will be deferred to the time when Safe-T’s financial
results for the year 2019 are published, or the 2019 Financial Statements. Safe-T, at its sole discretion, may elect to pay up
to fifty percent (50%) of the EarnOut Amount in its ordinary shares, or the EarnOut Shares, provided that in any event, the amount
of the EarnOut Shares will not exceed 44,756,273 ordinary shares (representing a quotient of half of the maximum Earn-Out Amount,
i.e. $2,500,000, divided by the Initial Consideration PPS). Safe-T shall grant to the Company’s shareholders first security interest
and pledge in 30% of the Company’s shares being purchased, as a security for full and timely payment of the EarnOut Amount (if
any).
|
NETNUT LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 17 - SUBSEQUENT EVENTS
(continued):
In consideration for the sale,
delivery, transfer and assignment of the Purchased Assets, Safe-T will pay DiVi at Closing:
|
|
●
|
An aggregate amount equal to $6,300,000,
or the Assets Purchase Price. The Assets Purchase Price shall be paid as follows:
|
|
|
-
|
An amount equal to $3,455,258 payable at Closing in immediately payable funds;
|
|
|
-
|
An amount equal to $324,742 will be deposited in escrow, and
|
|
|
-
|
An amount equal to $2,520,000, payable at Closing in Safe-T’s ordinary shares, issued at a per
share price equal to the Initial Consideration PPS, i.e. 45,114,327 ordinary shares.
|
|
|
b.
|
Reclassification and conversion of ordinary shares
|
In March 2019, the Company’s
board of directors agreed to reclassify and convert 12,500 ordinary shares of the Company into 12,500 ordinary A shares, having
each rights and privileges and subject to such restrictions as specified in the Company’s Amended Articles of Association.
UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS
The unaudited combined
condensed pro forma statement of profit or loss combine the historical consolidated statement of profit or loss of the Company
and the statement of profit or loss of Net-Nut as if the merger between these two entities had occurred on January 1, 2018. The
unaudited combined condensed pro forma balance sheet combines the historical consolidated balance sheet of the Company and the
historical balance sheet of Net-Nut giving effect to the merger as if it had occurred on December 31, 2018. The transaction is
to be accounted for as a business combination with the Company identified as the accounting acquirer.
The allocation of the
purchase price in the merger as reflected in these pro forma combined condensed financial statements has been based upon preliminary
estimates of the fair value of assets acquired and liabilities assumed as of the date of merger. Management, with the assistance
of independent valuation specialists, is currently assessing the fair values of the tangible and intangible assets acquired and
liabilities assumed.
A final determination
of the fair values of Net-Nut’s assets and liabilities, which cannot be made prior to the completion of the transaction, will be
based on the actual net tangible and intangible assets of Net-Nut that exist as of the date of completion of the merger and such
valuations could change significantly upon the completion of further analyses and asset valuations from those used in the combined
condensed pro forma financial statements presented below. The purchase price is also subject to variation depending on changes
in the company’s stock price until the date of closing.
The unaudited pro forma
combined condensed financial statements do not include liabilities resulting from integration planning. Amounts preliminarily allocated
to goodwill may significantly decrease and amounts allocated to intangible assets with definite lives may increase significantly,
which could result in a material increase in amortization of acquired intangible assets. Therefore, the actual amounts recorded
as of the completion of the transaction may differ materially from the information presented in the accompanying unaudited pro
forma combined condensed financial statements. In addition to the receipt of the final valuation, the impact of ongoing integration
activities, the timing of completion of the transaction and other changes in Net Nut’s net tangible and intangible assets that
occur prior to completion of the transaction could cause material differences in the information presented.
The cash portion of
the acquisition consideration will be financed by an aggregate of $6 million convertible loan and warrants, which have been included
as a pro forma adjustment.
The unaudited pro forma
condensed combined 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 Net-Nut, which are incorporated by reference into, and included in, respectively, in this registration statement.
Unaudited Pro Forma
Combined Condensed Statement of Profit or Loss
For the year ended December 31, 2018
(U.S. dollars in thousands, except per share data)
|
|
|
Safe-T
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
1,466
|
|
|
|
2,204
|
|
|
|
-
|
|
|
|
|
|
3,670
|
|
|
Cost of Revenues
|
|
|
791
|
|
|
|
662
|
|
|
|
1,619
|
|
|
(1),(2)
|
|
|
3,072
|
|
|
Gross profit
|
|
|
675
|
|
|
|
1,542
|
|
|
|
(1,619
|
)
|
|
|
|
|
598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses
|
|
|
2,414
|
|
|
|
443
|
|
|
|
-
|
|
|
|
|
|
2,857
|
|
|
Selling and Marketing expenses
|
|
|
5,542
|
|
|
|
787
|
|
|
|
162
|
|
|
(1)
|
|
|
6,491
|
|
|
General and Administrative expenses
|
|
|
1,925
|
|
|
|
513
|
|
|
|
-
|
|
|
|
|
|
2,438
|
|
|
|
|
|
9,881
|
|
|
|
1,743
|
|
|
|
162
|
|
|
|
|
|
11,786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(9,206
|
)
|
|
|
(201
|
)
|
|
|
(1,781
|
)
|
|
|
|
|
(11,188
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial expenses
|
|
|
(3,496
|
)
|
|
|
(76
|
)
|
|
|
(480
|
)
|
|
(3)
|
|
|
(4,052
|
)
|
|
Financial income
|
|
|
955
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
955
|
|
|
Financial expenses, net
|
|
|
(2,541
|
)
|
|
|
(76
|
)
|
|
|
(480
|
)
|
|
|
|
|
(3,097
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before taxes on income
|
|
|
(11,747
|
)
|
|
|
(277
|
)
|
|
|
(2,261
|
)
|
|
|
|
|
(14,285
|
)
|
|
Taxes on income
|
|
|
(6
|
)
|
|
|
-
|
|
|
|
358
|
|
|
(4)
|
|
|
352
|
|
|
Net loss for the year
|
|
|
(11,753
|
)
|
|
|
(277
|
)
|
|
|
(1,903
|
)
|
|
|
|
|
(13,933
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per Share (in dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
(0.33
|
)
|
|
|
|
|
|
|
|
|
|
(5)
|
|
|
(0.13
|
)
|
|
Diluted
|
|
|
(0.35
|
)
|
|
|
|
|
|
|
|
|
|
(5)
|
|
|
(0.14
|
)
|
|
Weighted average number of Shares outstanding used to compute (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
35,302
|
|
|
|
|
|
|
|
|
|
|
(5)
|
|
|
104,764
|
|
|
Diluted
|
|
|
35,646
|
|
|
|
|
|
|
|
|
|
|
(5)
|
|
|
105,108
|
|
See Notes to Unaudited Pro forma Combined
Financial Statements
Unaudited Pro Forma
Combined Condensed Balance Sheet
As of December 31, 2018
(U.S. dollars in thousands)
|
|
|
Safe-T
|
|
|
Net-Nut
|
|
|
Adjustments
|
|
|
Note
|
|
Pro
forma
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
3,717
|
|
|
|
16
|
|
|
|
6,000
|
|
|
(a)
|
|
|
3,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,820
|
)
|
|
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(150
|
)
|
|
(f)
|
|
|
|
|
|
Restricted deposits
|
|
|
104
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
104
|
|
|
Accounts receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade, net
|
|
|
854
|
|
|
|
108
|
|
|
|
-
|
|
|
|
|
|
962
|
|
|
Other
|
|
|
231
|
|
|
|
75
|
|
|
|
-
|
|
|
|
|
|
306
|
|
|
Related parties
|
|
|
-
|
|
|
|
111
|
|
|
|
-
|
|
|
|
|
|
111
|
|
|
Total current assets
|
|
|
4,906
|
|
|
|
310
|
|
|
|
30
|
|
|
|
|
|
5,246
|
|
|
Non-current Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
143
|
|
|
|
10
|
|
|
|
248
|
|
|
(c)
|
|
|
401
|
|
|
Goodwill
|
|
|
523
|
|
|
|
337
|
|
|
|
6,894
|
|
|
(c)
|
|
|
7,754
|
|
|
Intangible assets, net
|
|
|
796
|
|
|
|
114
|
|
|
|
8,111
|
|
|
(b),(c)
|
|
|
9,021
|
|
|
Total non-current assets
|
|
|
1,462
|
|
|
|
461
|
|
|
|
15,253
|
|
|
|
|
|
17,176
|
|
|
Total assets
|
|
|
6,368
|
|
|
|
771
|
|
|
|
15,283
|
|
|
|
|
|
22,422
|
|
|
Liabilities and equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accruals:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade
|
|
|
103
|
|
|
|
177
|
|
|
|
-
|
|
|
|
|
|
280
|
|
|
Other
|
|
|
951
|
|
|
|
117
|
|
|
|
-
|
|
|
|
|
|
1,068
|
|
|
Contract liabilities
|
|
|
495
|
|
|
|
71
|
|
|
|
-
|
|
|
|
|
|
566
|
|
|
Liability in respect of the Israeli Innovation Authority
|
|
|
49
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
49
|
|
|
Short-term loan
|
|
|
-
|
|
|
|
53
|
|
|
|
-
|
|
|
|
|
|
53
|
|
|
Related parties
|
|
|
-
|
|
|
|
130
|
|
|
|
-
|
|
|
|
|
|
130
|
|
|
Total current liabilities
|
|
|
1,598
|
|
|
|
548
|
|
|
|
-
|
|
|
|
|
|
2,146
|
|
|
Non-current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract liabilities
|
|
|
249
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
249
|
|
|
Derivative financial instruments
|
|
|
729
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
729
|
|
|
Deferred tax liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
1,816
|
|
|
(d)
|
|
|
1,816
|
|
|
Convertible loan and warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
6,000
|
|
|
(a)
|
|
|
6,000
|
|
|
Contingent consideration liability
|
|
|
-
|
|
|
|
-
|
|
|
|
3,045
|
|
|
(c)
|
|
|
3,045
|
|
|
Liability in respect of the Israeli Innovation Authority
|
|
|
82
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
82
|
|
|
Total non-current liabilities
|
|
|
1,060
|
|
|
|
-
|
|
|
|
10,861
|
|
|
|
|
|
11,921
|
|
|
Total liabilities
|
|
|
2,658
|
|
|
|
548
|
|
|
|
10,861
|
|
|
|
|
|
14,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary and ordinary A shares
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
-
|
|
|
Share premium
|
|
|
41,594
|
|
|
|
801
|
|
|
|
4,795
(801)
|
|
|
(c)
(e)
|
|
|
46,389
|
|
|
Other equity reserves
|
|
|
11,805
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
11,805
|
|
|
Accumulated deficit
|
|
|
(49,689
|
)
|
|
|
(578
|
)
|
|
|
(150)
578
|
|
|
(f)
(e)
|
|
|
(49,839
|
)
|
|
Total equity
|
|
|
3,710
|
|
|
|
223
|
|
|
|
4,422
|
|
|
|
|
|
8,355
|
|
|
Total equity and liabilities
|
|
|
6,368
|
|
|
|
771
|
|
|
|
15,283
|
|
|
|
|
|
22,422
|
|
See Notes to Unaudited Pro forma Combined
Condensed Financial Statements
Notes to Unaudited Pro Forma Consolidated
Financial Statements
On April 4, 2019,
and following our Board of Directors approval on March 31, 2019, we entered into a share and asset purchase agreement, or the Share
and Asset Purchase Agreement, with NetNut Ltd., or NetNut, and its shareholders, pursuant to which we will acquire all (100%) of
the fully diluted share capital of NetNut, or the Purchased Shares, a private Israeli company engaged in the business proxy network
solution industry, and certain assets of DiViNetworks Ltd., or DiVi, NetNut’s controlling shareholder which assets are required
for the ongoing operations of NetNut, or the Purchased Assets and the NetNut Transaction, respectively. The consideration for the
NetNut Transaction will be paid in cash and with Ordinary Shares, as set forth below.
The maximum purchase
price payable by us for the Purchased Shares and Purchased Assets is up to $14.7 million, subject to certain adjustments, all as
set forth below:
|
|
1.
|
In consideration for the
Purchased Shares, we will pay NetNut’s shareholders:
|
|
|
●
|
An amount equal to $3,400,000,
or the Initial Shares Purchase Price, out of which (i) a $1,614,742 will be paid on the closing of the NetNut Transaction, or
the Closing, in immediate funds (in addition to a $250,000 down payment paid by us upon signing of Share and Asset Purchase Agreement);
(ii) $175,257 will be deposited in escrow (as set forth below); and (iii) $1,360,000 will be paid by issuance of 24,347,410 Ordinary
Shares (based on price per share of NIS 0.2031 which is a per share 30-day average price of our Ordinary Shares on the TASE prior
to the date on which the Share and Asset Purchase Agreement was signed, or the Initial Consideration PPS). The Initial Shares
Purchase Price was determined based on an assumption that NetNut working capital on the Closing is equal to zero. The parties
agreed that the Initial Shares Purchase Price may be increased or decreased on a dollar-for-dollar basis (payable or receivable
in cash
)
in the event NetNut has a positive or negative working capital (respectively) on the date of the Closing.
|
|
|
●
|
An amount of up to $5,000,000
payable in contingent consideration, or the EarnOut Amount, will be paid and distributed to the shareholders of NetNut subject
and upon NetNut achieving certain revenue milestones in 2019, hence, the payment of the payable EarnOut Amount will be deferred
to the time when our financial results for the year 2019 are published, or the 2019 Financial Statements. We, at our sole discretion,
may elect to pay up to fifty percent (50%) of the EarnOut Amount in Ordinary Shares, or the EarnOut Shares, provided that in any
event, the amount of the EarnOut Shares will not exceed 44,756,273 Ordinary Shares (representing a quotient of half of the maximum
Earn-Out Amount, i.e. $2,500,000, divided by the Initial Consideration PPS). We shall grant NetNut’s shareholders first
security interest and pledge in 30% of NetNut shares being purchased, as a security for full and timely payment of the EarnOut
Amount (if any).
|
|
|
2.
|
In consideration for the
sale, delivery, transfer and assignment of the Purchased Assets (see note c below for details on the allocation of the purchase
price in the business combination, which includes the fair value of the Purchased Assets), we will pay DiVi at Closing:
|
|
|
●
|
an aggregate amount
equal to $6,300,000, or the Assets Purchase Price. The Assets Purchase Price shall be paid as follows:
|
|
|
-
|
An amount equal to $3,455,258
payable at Closing in immediately payable funds;
|
|
|
-
|
An amount equal to $324,742
will be deposited in escrow (as set forth below); and
|
|
|
-
|
An amount equal to $2,520,000,
payable at Closing in Ordinary Shares, issued at a per share price equal to the Initial Consideration PPS, i.e. 45,114,327 Ordinary
Shares.
|
In connection with the Transaction,
the Company has agreed to pay to certain finders of the Transaction a fee equal to the sum of 3.0% of the total purchase price
of the Transaction, and in any event not less than USD $150,000. The Company may elect to pay up to 50% of such fee in equity securities
of the Company.
The unaudited pro forma combined
balance sheet gives effect to the merger between Safe-T and Net-Nut as if it had occurred on December 31, 2018. The unaudited pro
forma combined statement of profit or loss gives effect to the merger between Safe-T and Net-Nut as if it had occurred on January
1, 2018. The pro forma combined condensed statements of profit or loss do not include any non-recurring charges, directly attributable
to the merger. The pro forma adjustments are based on preliminary estimates, which may change as additional information is obtained.
Adjustments to unaudited combined
condensed pro forma balance sheet as of December 31, 2018.
(a)
An amount of approximately $ 5.8 million of the total consideration in the transaction is expected to be financed from funds to
be obtained from issuance of a convertible loan (“Financing Debentures”) and detachable warrants (“Financing Warrants”)
in an aggregate amount of $6 million.
The April 2019 Financing
Debentures will have an 18 month term from issuance and bear interest at 8% per annum payable quarterly in cash or ADSs. The April
2019 Financing Debentures are convertible at $2.05 per ADS, or the Conversion Price, provided that if 80% of the five day daily
volume weighted average price, or VWAP, of the ADSs on Nasdaq on the effective date of this resale registration statement is less
than $2.05, the conversion price shall be reset to equal the greater of (i) $1.65, and (ii) 80% of the five day VWAP on the effective
date.
The conversion price
of the April 2019 Financing Debentures will be reset, but not below $0.40 per ADS, if there is a subsequent issuance of our securities
below the conversion price, to the price of the subsequent issuance, and the April 2019 Financing Debentures contain other customary
anti-dilution features, with the Black-Scholes value of the April 2019 Financing Debentures payable upon the occurrence of a fundamental
transaction. We can redeem the April 2019 Financing Debentures after the effective date of this resale registration statement upon
20 trading days prior notice to the Lenders at 120% of the principal amount of the April 2019 Financing Debentures, plus accrued
interest.
The April 2019 Financing
Warrants have an exercise price per ADS equal to 115% of the Conversion Price, with 100% warrant coverage to the value of the April
2019 Financing Debentures. The Warrants have a five year term and will be exercisable for cash or on a cashless basis if no resale
registration statement available for resale of the ADSs issuable upon exercise of the April 2019 Financing Warrants. The exercise
price of the April 2019 Financing Warrants will be reset, but not below $0.40, if within 18 months from the issuance of the April
2019 Financing Warrants there is a subsequent issuance of our securities below the exercise price, to the price of the subsequent
issuance, and the April 2019 Financing Warrant’s contain other customary anti-dilution provisions, with the Black-Scholes
value of the warrants payable upon the occurrence of a fundamental transaction.
(b) Fair value of
identifiable intangible assets acquired in excess of intangible assets recorded in connection with previous acquisition by Net-Nut.
(c) The fair values
of Net-Nut net assets have been estimated for the purpose of allocating the purchase price and determining the pro forma effect
of the merger on the unaudited combined condensed pro forma financial statements. The estimated purchase price of $13.7 million
has been calculated and preliminarily assigned to the net tangible and intangible assets acquired as follows:
|
|
|
US$ in thousands
|
|
|
Purchase price calculation:
|
|
|
|
|
Safe-T’s market price per Share*
|
|
|
0.069
|
|
|
Number of shares to be issued
|
|
|
69,461,737
|
|
|
Total share consideration
|
|
|
4,795
|
|
|
Cash consideration
|
|
|
5,820
|
|
|
Contingent consideration (**)
|
|
|
3,045
|
|
|
|
|
|
|
|
|
Total purchase price
|
|
|
13,660
|
|
|
|
*
|
the market price per share is the share closing price in
Tel Aviv Stock Exchange as of April 14, 2019, translated into USD. A 10% change in the share price at closing would change the
total purchase price by $480 thousand.
|
|
|
(**)
|
The fair value of the contingent
consideration was valued using a Monte Carlo model with the expected sales and volatility as well as the discount rate being the
primary inputs.
|
Purchase price allocation to net tangible and intangible assets acquired and to goodwill:
|
Net tangible liabilities, including deferred tax liabilities
|
|
|
(1,796
|
)
|
|
Identifiable Intangible assets and goodwill (**):
|
|
|
|
|
|
Technology and supplier relations
|
|
|
7,738
|
|
|
Customer relations
|
|
|
487
|
|
|
Goodwill
|
|
|
7,231
|
|
|
|
|
|
|
|
|
Total
|
|
|
13,660
|
|
|
|
(*)
|
Goodwill represents the excess
of the purchase price over the fair value of tangible and identifiable intangible assets, net of the fair value of liabilities
assumed.
|
(d) Deferred income
taxes provided in respect of fair value adjustments made to tangible and identifiable intangible assets acquired in the merger
that do not impact the underlying tax basis.
(e) Elimination of
all components of Net-Nut’s equity and the issuance of the shares as part of the consideration in the transaction.
(f) Payment of finders
fees in the amount of $150,000, as detailed above.
Adjustments to unaudited combined condensed
pro forma statement of profit or loss.
|
|
(1)
|
Amortization of intangible assets established as part
of the purchase price allocation in connection with the merger with Net-Nut. Intangible assets are amortized on a straight-line
basis over the following number of years:
|
Technology and suppliers relations
– 5 years
Customer relations –
3 years
|
|
(2)
|
Add back of Net-Nut historical intangible assets amortization.
|
|
|
(3)
|
Estimated additional interest expense due to the 8%
convertible debt assumed in connection with the merger.
|
|
|
(4)
|
Reflecting the tax effect of the pro forma adjustments,
using the applicable tax rates.
|
|
|
(5)
|
The calculation of the weighted average number of
Shares for pro forma basic earnings per share gives effect to the issuance of 69,461,737 Company shares in the transaction assuming
these were issued on January 1, 2018.
|