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Item 1A. Risk Factors

2023-10-26 compared with 2023-07-27 · 19 added, 85 removed, 1 unchanged (99% of the section changed)

Our business faces significant risks and uncertainties, which may have a material adverse effect on our business prospects, financial condition and results of operations, and you should carefully consider them.

There have been no material changes in the six months ended June 30, 2023 to the risk factors described in Part I, Item 1A.

of our Annual Report on Form 10-K for the year ended December 31, 2022, with the exception of the risk factors below.

Risks Related to Ownership of our Series A Preferred Stock and Warrants

Our obligations to pay dividends or make distributions and, upon liquidation of the Company, liquidation payments in respect of the Series A Preferred Stock are subordinate to our obligations to make any principal and interest payments due and owing with respect to our outstanding debt.

Our obligations to pay dividends or make distributions and, upon liquidation of the Company, liquidation payments in respect of our Series A Preferred Stock are subordinate to our obligations to make any principal and interest payments due and owing with respect our outstanding debt.

Accordingly, our outstanding debt has the effect of creating special risks for our Series A Preferred Stockholders that would not be present in a capital structure that did not include such securities.

Holders of our Series A Preferred Stock have limited voting rights.

Holders of Series A Preferred Stock have no voting rights with respect to matters that generally require the approval of voting stockholders.

Holders of Series A Preferred Stock have the right to vote, subject to certain exceptions, with respect to any amendment of our Restated Certificate of Incorporation, as amended, (including the Certificate of Designation for the Series A Preferred Stock), any issue of Capital Stock (as defined in the Certificate of Designation), any increase or decrease of the authorized number of shares of Series A Preferred Stock and any merger or consolidation of the Company, and are not entitled to vote on any other matter except to the extent required under the General Corporation Law of the State of Delaware.

Holders of our Series A Preferred Stock bear dividend risk.

We may not have sufficient funds to pay dividends on the Series A Preferred Stock.

In addition, contractual restrictions may prevent us from declaring or paying dividends.

Our ability to declare and pay dividends on the Series A Preferred Stock depends on many factors, including the following:

• our financial condition, including the amount of cash we have on hand;

• the amount of cash, if any, generated by our operations and financing activities;

• our anticipated financing needs, including the amounts needed to service our indebtedness or other obligations;

• the degree to which we decide to reinvest any cash generated by our operations or financing activities to fund our future operations;

• the ability of our subsidiaries to distribute funds to us;

• regulatory restrictions on our ability to pay dividends, including under the Delaware General Corporation Law;

• contractual restrictions on our ability to pay dividends.

You may receive less than the full amount of accrued dividends on your Series A Preferred Stock.

In addition, if we fail to declare and pay accrued dividends on the Series A Preferred Stock in full, then the value or trading price, if any, of the Series A Preferred Stock will likely decline.

If the terms of our indebtedness restrict or prohibit us from paying dividends, then we may seek to refinance that indebtedness or seek a waiver that would permit the payment of dividends.

However, we may be unable or may choose not to refinance the indebtedness or obtain a waiver.

Under the Delaware General Corporation Law, we may declare dividends on the Series A Preferred Stock only out of our “surplus” (which generally means our total assets less total liabilities, each measured at their fair market values, less statutory capital), or, if there is no surplus, out of our net profits for the current or the immediately preceding fiscal year.

We may not have sufficient surplus or net profits to declare and pay dividends on the Series A Preferred Stock.

If we fail to declare and pay full dividends on the Series A Preferred Stock, then we will be prohibited from paying dividends on our common stock and any other junior securities, subject to limited exceptions.

A reduction or elimination of dividends on our common stock may cause the trading price of our common stock to decline, which, in turn, will likely depress the value or trading price, if any, of the Series A Preferred Stock.

The existence of the liquidation preference of the Series A Preferred Stock may reduce the value of our common stock.

Our Series A Preferred Stock has a liquidation preference that is required to be paid prior to any payment on our common stock (including the shares underlying our outstanding stock purchase warrants).

The payment of the liquidation preferences could result in common stockholders and holders of our warrants not receiving any consideration if we were to liquidate, dissolve or wind up, either voluntarily or involuntarily.

The existence of the liquidation preferences may reduce the value of our common stock, make it harder for us to sell shares of our common stock in offerings in the future, or prevent or delay a change of control.

We may issue preferred stock in the future that ranks senior to or equally with the Series A Preferred Stock with respect to dividends and liquidation rights, which may adversely affect the rights of holders of the Series A Preferred Stock.

With the consent of the holders of at least two-thirds of the outstanding Series A Preferred Stock (and any other voting stock with similar voting rights), we may authorize and issue preferred stock that ranks senior to or equally with the Series A Preferred Stock with respect to the payment of dividends or the distribution of assets upon our liquidation, dissolution or winding up.

If we issue any such preferred stock in the future, the rights of holders of the Series A Preferred Stock will be diluted and the value or trading price, if any, of the Series A Preferred Stock may decline.

Our Series A Preferred Stock has rights, preferences, and privileges that are not held by, and are preferential to, the rights of holders of our common stock, which could adversely affect our liquidity and financial condition, and may result in the interests of holders of the Series A Preferred Stock differing from holders of our common stock.

The holders of Series A Preferred Stock have the right under the Certificate of Designation to receive a liquidation preference entitling them to be paid out of our assets available for distribution to stockholders before any payment may be made to holders of any other class or series of capital stock junior to the Series A Preferred Stock, subject to the rights of existing and future creditors, an amount equal to the stated value of their shares of Series A Preferred Stock plus all accrued and unpaid dividends.

The holders of the Series A Preferred Stock will be entitled to receive cumulative dividends, at a rate of 9.25% prior to the first anniversary of the Closing Date, 9.75% per annum on or after the first anniversary of the Closing Date but prior to the second anniversary of the Closing Date and 12.00% on or after the second anniversary of the Closing Date and thereafter, and in accordance with the terms of the Certificate of Designation.

The dividends on each share of Series A Preferred Stock are to be paid in cash or in-kind through an increase in the stated value of such share, as set forth in the Certificate of Designation.

We may redeem shares of Series A Preferred Stock on or after March 30, 2024 for cash at the redemption prices per share of Series A Preferred Stock of (i) 103% of the Liquidation Preference (as defined in the Certificate of Designation) if redeemed during the 12-month period beginning on March 30, 2024 to March 30, 2025 and (ii) 102% of the Liquidation Preference if redeemed on March 30, 2025 and thereafter.

We are also required to redeem all shares of Series A Preferred Stock on the Maturity Date (as defined in the Certificate of Designation) at a purchase price per share of Series A Preferred Stock equal to the Mandatory Redemption Price (as defined in the Certificate of Designation), provided that such purchase can be made out of funds legally available therefor.

In addition, upon certain change of control events, holders of shares of Series A Preferred Stock may require us to redeem all or part of such holder’s shares of Series A Preferred Stock at a purchase price per share of Series A Preferred Stock, payable in cash, equal to the Change of Control Purchase Price (as defined in the Certificate of Designation), provided that such purchase can be made out of funds legally available therefor.

These dividend and share redemption obligations could adversely affect our liquidity and reduce the amount of cash available for working capital, capital expenditures, growth opportunities, acquisitions, and other general corporate purposes.

Our obligations to the holders of Series A Preferred Stock could also limit our ability to obtain additional financing or increase

our borrowing costs, which could have an adverse effect on our financial condition.

The preferential rights could also result in divergent interests between the holders of our Series A Preferred Stock and holders of shares of our Common Stock.

The warrants are speculative in nature and may not have any value.

The outstanding warrants to purchase shares of our common stock will have value only if price of our common stock exceeds the exercise price of the warrants.

There can be no assurance that the market price of our common stock will equal or exceed the exercise price of the warrants.

In the event that the price of our common stock does not exceed the exercise price of the warrants, the warrants will not have any value.

Holders of the warrants may exercise their right to acquire the shares of common stock and pay an exercise price of $3.77 per share prior to four years from the date of issuance, after which date any unexercised warrants will expire and have no further value.

Holders of the warrants will have no rights as a common stockholder until they acquire our common stock.

Until holders of the warrants acquire shares of our common stock upon exercise of the warrants, the holders will have no rights with respect to the common stock underlying the warrants.

Upon exercise of the warrants, the holder will be entitled to exercise the rights of a common stockholder as to our common stock only as to matters for which the record date occurs after the exercise.

The warrants are exercisable for common stock, which would increase the number of shares eligible for future resale in the public market and result in dilution to stockholders.

The warrants to purchase an aggregate of 4,858,090 shares of our common stock are immediately exercisable.

Each such warrant entitles the holder thereof to purchase one share of common stock at a price of $3.77 per whole share, subject to adjustment.

To the extent such warrants are exercised, additional shares of common stock will be issued, which will result in dilution to the then existing holders of common stock and increase the number of shares eligible for resale in the public market.

Sales of substantial numbers of such shares in the public market could adversely affect the market price of our common stock.

The market price of shares of our common stock may experience volatility, which could cause holders of the warrants to incur substantial losses.

Volatility in the trading price of our common stock could significantly affect the value or trading price, if any, of the warrants.

This could result in significant volatility in the value or trading price, if any, of the warrants.

The warrants will have value only if the price of our common stock exceeds the exercise price of the warrant.

There can be no assurance that the market price of our common stock will equal or exceed the exercise price of the warrants.

In the event that the price of our common stock does not exceed the exercise price of the warrants, or if the price of our common stock falls below the exercise price of the warrants after a holder exercises its option, the warrants will not have any value and the holders of our warrants may incur substantial losses.

An active trading market for the Series A Preferred Stock and warrants does not exist and may not develop.

The Series A Preferred Stock and warrants have no established trading market and are not listed on any securities exchange, and we do not intend to list the Series A Preferred Stock and warrants on any securities exchange.

We cannot assure you that an active trading market in the Series A Preferred Stock or the warrants will develop and, even if it develops, we cannot assure you that it will last.

In either case, the trading prices of the Series A Preferred Stock and warrants could be adversely affected and holders’ ability to transfer shares of Series A Preferred Stock or warrants will be limited.

The terms of the Series A Preferred Stock and warrants impose additional challenges on our ability to raise capital.

The terms of the Series A Preferred Stock and the warrants contain a number of restrictive covenants that may impose significant operating and financial restrictions on us while the Series A Preferred Stock and warrants remain outstanding, unless the restrictions are waived by consent of at least 66 2 ∕ 3 % of the then-issued and outstanding shares of Series A Preferred Stock, including, but not limited to, restrictions on our ability to pay dividends or make other distributions or repurchase or redeem our capital stock;

issue additional equity ranking senior or pari passu to the Series A Preferred Stock;

and enter into certain transactions, among other restrictions.

A breach of the covenants or restrictions under the agreements related to the sale of the Series A Preferred Stock and warrants and related agreements governing our indebtedness could result in an event of default under such agreements.

As a result of these restrictions, we may be limited in how we conduct our business, unable to finance our operations through additional debt or equity financings and/or unable to compete effectively or to take advantage of new business opportunities.

Further, while we could potentially receive up to an aggregate of $18.3 million in gross proceeds from the exercise of the warrants, no assurances can be made that the holders of such warrants will elect to exercise any or all of such warrants and, accordingly, no assurance that we will receive any proceeds from the exercise of the warrants.

We believe the likelihood that the holders will exercise the warrants, and therefore the amount of cash proceeds that we would receive, is dependent upon the trading price of our common stock, which as of the date this filing was below the exercise price of $3.77 for the warrants.

If the trading price for our common stock is less than the exercise price for the warrants, we believe the holders of such warrants will be unlikely to exercise their warrants.

Accordingly, we may not receive cash proceeds with respect to the warrants, and we are restricted in our ability to conduct additional debt or equity financings.

We may issue debt and equity securities that are senior to our common stock as to distributions and in liquidation, which could negatively affect the value of our common stock.

In the future, we may increase our capital resources by entering into debt or debt-like financing or issuing debt or equity securities, which could include issuances of senior notes, subordinated notes or preferred stock.

In the event of a liquidation of the Company, our lenders and holders of our debt or preferred securities would receive a distribution of our available assets before distributions to the holders of our common stock.

Our decision to incur debt and issue other securities in future offerings will depend on market conditions and other factors beyond our control.

We cannot predict or estimate the amount, timing or nature of our future offerings and debt financings.

Future offerings could reduce the value of our common stock and dilute the interests of our stockholders.

There have been no material changes in the nine months ended September 30, 2023 to the risk factors described in Part I, Item 1A.

of our Annual Report on Form 10-K for the year ended December 31, 2022 and our Quarterly Report on Form 10-Q for the quarter ended June 30, 2023, with the exception of the risk factor below.

Conditions in Israel may materially and adversely affect the Company’s business.

We have a significant number of employees located in Israel.

As a result, political, economic and military conditions in Israel may directly affect the Company’s business.

In October 2023, Hamas conducted several terrorist attacks in Israel resulting in ongoing war across the country, forcing the closure of our offices in Israel for several days.

In addition, there continue to be hostilities between Israel and Hezbollah in Lebanon and Hamas in the Gaza Strip, both of which resulted in rockets being fired into Israel, causing casualties and disruption of economic activities.

In early 2023, there were a number of changes proposed to the political system in Israel by the current government which, if implemented as planned, could lead to large-scale protests and additional uncertainty, negatively impacting the operating environment in Israel.

Popular uprisings in various countries in the Middle East over the last few years have also affected the political stability of those countries and have led to a decline in the regional security situation.

Such instability may also lead to deterioration in the political and trade relationships that exist between Israel and these countries.

Any armed conflicts, terrorist activities or political instability involving Israel or other countries in the region could adversely affect our business, results of operations, financial condition, cash flows and prospects.

Although the Israeli Government currently covers the reinstatement value of direct damages that are caused by terrorist attacks or acts of war, we cannot ensure stockholders that this coverage will be maintained or will be adequate in the event we submit a claim.

A number of countries, principally in the Middle East, still restrict doing business with Israel and Israeli companies, and additional countries may impose restrictions on doing business with Israel and Israeli companies if hostilities in Israel or political instability in the region continue or increase.

In addition, there have been increased efforts by activists to cause companies and consumers to boycott Israeli goods based on Israeli Government policies.

Such actions, particularly if they become more widespread, may adversely impact our ability to sell our products.

Our operations could also be disrupted by the absence for significant periods of one or more key employees or a significant number of other employees because of military service.

Some of our employees in Israel are obliged to perform military reserve duty, which generally accumulates over a period of three years from several days to up to a maximum of 84 days (and up to 108 days, in special circumstances specified under applicable law) and, in certain emergency circumstances, employees may be called to immediate and unlimited active duty.

In response to the terrorist attacks in October 2023, a number of our employees in Israel have been activated for military duty and we expect that additional employees will also be activated if the war in Israel continues.

While we have business continuity plans in place to address the military call-ups, any of these circumstances could have a material adverse effect on our business, results of operations, financial condition, cash flows and prospects.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1A. Risk Factors