CONTENTS
Page
|
1 |
|
1 |
|
1 |
|
2 |
|
4 |
|
4 |
|
4 |
|
4 |
|
4 |
|
4 |
|
4 |
|
32 |
|
32 |
|
33 |
|
44 |
|
44 |
|
44 |
|
44 |
|
50 |
|
52 |
|
54 |
|
54 |
|
54 |
|
57 |
|
57 |
|
60 |
|
63 |
|
72 |
|
72 |
|
72 |
|
72 |
|
74 |
|
75 |
|
75 |
|
75 |
|
76 |
|
76 |
|
76 |
|
76 |
|
76 |
|
76 |
|
76 |
|
77 |
|
77 |
|
77 |
|
77 |
|
78 |
|
79 |
|
79 |
|
91 |
|
91 |
|
91 |
|
91 |
|
92 |
|
92 |
|
93 |
|
93 |
|
93 |
|
93 |
|
93 |
|
93 |
|
94 |
|
95 |
|
95 |
|
95 |
|
95 |
|
95 |
|
96 |
|
96 |
|
96 |
|
98 |
|
F-1 |
ABOUT
THIS ANNUAL REPORT
Except where the context otherwise requires
or where otherwise indicated in this annual report (this “Annual Report”), the terms “Otonomo,” the “Company,”
“we,” “us,” “our,” “our company” and “our business” refer to Otonomo Technologies
Ltd., together with its consolidated subsidiaries as a consolidated entity.
All references in this Annual Report to “Israeli
currency” and “NIS” refer to New Israeli Shekels, the terms “dollar,” “USD” or “$”
refer to U.S. dollars and the terms “€” or “euro” refer to the currency introduced at the start of the third
stage of European economic and monetary union pursuant to the treaty establishing the European Community, as amended.
All references in this Annual Report to “Business
Combination” or “Recapitalization” refer to the transactions effected under the business combination agreement, dated
as of January 31, 2021 (the “Business Combination Agreement”), by and among Software Acquisition Group Inc. II, a Delaware
corporation (“SWAG”), Otonomo and Butterbur Merger Sub Inc., a Delaware corporation and wholly owned subsidiary of Otonomo
(“Merger Sub”). Pursuant to the Business Combination Agreement, Merger Sub merged with and into SWAG, with SWAG surviving
the merger. Upon consummation of the Business Combination and the other transactions contemplated by the Business Combination Agreement
on August 13, 2021, SWAG became a wholly owned subsidiary of Otonomo.
All references in this Annual Report to the
“Neura Acquisition” refer to the transactions effected under that certain Agreement and Plan of Merger, dated as of October
4, 2021, by and among Otonomo, Neura, Inc. (“Neura”) and the other parties thereto (the “Neura Merger Agreement”),
pursuant to which Otonomo acquired Neura. Otonomo acquired 100% of Neura’s outstanding equity interests for transaction consideration
of approximately $46.8 million, including the issuance of ordinary shares (the “Neura Shares”).
All references in this Annual Report to the
“Floow Acquisition” refer to the transactions effected under that certain definitive agreement, dated as of February 26, 2022
(the “Floow SPA”), to acquire The Floow, a SaaS provider of connected insurance technology for major carriers globally (“The
Floow”), in a cash and stock deal valued at approximately $69 million, including a performance-based earnout of up to $37.5 million.
The aggregate cash and stock consideration to be paid and issued upon closing is valued at $31.5 million based on a share price of $2.75.
INDUSTRY
AND MARKET DATA
Unless otherwise indicated, information contained
in this Annual Report concerning Otonomo’s industry and the regions in which it operates, including Otonomo’s general expectations
and market position, market opportunity, market share and other management estimates, is based on information obtained from various independent
publicly available sources and industry publications, surveys and forecasts. Otonomo has not independently verified the accuracy or completeness
of any third-party information. Similarly, internal surveys, industry forecasts and market research, which Otonomo believes to be reliable
based upon its management’s knowledge of the industry, have not been independently verified. While Otonomo believes that the market
data, industry forecasts and similar information included in this Annual Report are generally reliable, such information is inherently
imprecise. In addition, assumptions and estimates of Otonomo’s future performance and growth objectives and the future performance
of its industry and the markets in which it operates are necessarily subject to a high degree of uncertainty and risk due to a variety
of factors, including those discussed under the headings “Risk Factors,” “Cautionary Statement Regarding Forward-Looking
Statements; Market, Ranking and Other Industry Data” and “Operating and Financial Review and Prospects” in this Annual
Report.
TRADEMARKS,
TRADE NAMES AND SERVICE MARKS
This document contains references to trademarks,
trade names and service marks belonging to other entities. Solely for convenience, trademarks, trade names and service marks referred
to in this Annual Report may appear without the ® or TM symbols, but such references are not intended to indicate, in any way, that
the applicable licensor will not assert, to the fullest extent under applicable law, its rights to these trademarks and trade names. We
do not intend our use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement
or sponsorship of us by, any other companies.
CAUTIONARY
STATEMENT REGARDING FORWARD-‑LOOKING STATEMENTS
This Annual Report contains forward-looking
statements that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this
Annual Report, including statements regarding Otonomo’s future financial position, business strategy and plans and objectives of
management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements by terminology
such as “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,”
“should,” “plan,” “expect,” “predict,” “potential” or the negative of these
terms or other similar expressions. Forward-looking statements include, without limitation, Otonomo’s expectations concerning the
outlook for its business, productivity, plans and goals for future operational improvements and capital investments, operational performance,
future market conditions or economic performance and developments in the capital and credit markets and expected future financial performance,
as well as any information concerning possible or assumed future results of operations of Otonomo as set forth in this Annual Report.
Forward-looking statements involve a number
of risks, uncertainties and assumptions, and actual results or events may differ materially from those projected or implied in those statements.
Important factors that could cause such differences include, but are not limited to:
|
• |
We have a limited operating history and may be unable to achieve or sustain profitability or accurately predict our future results;
|
|
• |
We have a history of losses and expects to incur significant expenses and continuing losses for the foreseeable future; |
|
• |
We expect to invest substantially in research and development for the purpose of developing and commercializing new services, and
these investments could significantly reduce our profitability or increase our losses and may not generate revenue for us; |
|
• |
If we do not develop enhancements to our services and introduce new services that achieve market acceptance, our growth, business,
results of operations and financial condition could be adversely affected; |
|
• |
If we are unsuccessful at investing in growth opportunities, our business could be materially and adversely affected; |
|
• |
We may need to raise additional funds in the future in order to execute its business plan and these funds may not be available to
us when we needs them. If we cannot raise additional funds when we needs them, our business, prospects, financial condition and operating
results could be negatively affected; |
|
• |
We have experienced rapid growth, and if we fail to effectively manage our growth, then our business, results of operations and financial
condition could be adversely affected; |
|
• |
We rely, in part, on partnerships to grow our business. The partnerships may not produce the expected financial or operating results
we expect. In addition, if we are unable to enter into partnerships or successfully maintain them, our growth may be adversely impacted;
|
|
• |
Our business depends on expanding our base of data consumers and data consumers increasing their use of our services, and our inability
to expand our base of data consumers or any loss of data consumers or decline in their use of our services could materially and adversely
affect our business, results of operations and financial condition; |
|
• |
If we fail to adapt and respond effectively to rapidly changing technology, evolving industry standards, changing regulations, and
changing customer needs, requirements or preferences, our products may become less competitive; |
|
• |
The market for our services and platform is new and unproven, may decline or experience limited growth and is dependent in part on
consumers continuing to adopt our platform and use our services; |
|
• |
We rely on the ability to access data from external providers at reasonable terms and prices. Our data providers might restrict our
use of or refuse to license data, which could lead to our inability to access certain data or provide certain services and, as a result,
materially and adversely affect our operating results and financial condition; |
|
• |
If we are unable to expand our relationships with existing OEMs, vehicle fleet operators and mobile data providers, micromobility
data providers, Electric Vehicle’s (EV) charging data providers, and add new OEMs, vehicle fleet operators, data providers
and mobile devices, our business, results of operations and financial condition could be adversely affected; and |
|
• |
The other matters described in the section titled “Risk Factors” beginning on page 4. |
Otonomo cautions you against placing undue
reliance on forward-looking statements, which reflect current beliefs and are based on information currently available as of the date
a forward-looking statement is made. Forward-looking statements set forth herein speak only as of the date of this Annual Report. We do
not undertake any obligation to revise forward-looking statements to reflect future events, changes in circumstances, or changes in beliefs.
In the event that any forward-looking statement is updated, no inference should be made that we will make additional updates with respect
to that statement, related matters, or any other forward-looking statements. Any corrections or revisions and other important assumptions
and factors that could cause actual results to differ materially from forward-looking statements, including discussions of significant
risk factors, may appear in our public filings with the SEC, which are accessible at www.sec.gov, and which you are advised to consult.
Market, ranking and industry data used throughout
this Annual Report, including statements regarding market size and technology adoption rates, is based on the good faith estimates of
our management, which in turn are based upon our management’s review of internal surveys, independent industry surveys and publications,
and other third party research and publicly available information. These data involve a number of assumptions and limitations, and you
are cautioned not to give undue weight to such estimates. While we are not aware of any misstatements regarding the industry data presented
herein, its estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under
the heading “Risk Factors” and “Operating and Financial Review and Prospects” in this Annual Report.
PART I
Item 1. |
Identity of Directors, Senior Management and Advisers |
Not applicable.
Item 2. |
Offer Statistics and Expected Timetable |
Not applicable.
A. Selected
Financial Data
Reserved.
B. Capitalization
and Indebtedness
Not applicable.
C. Reasons
for the Offer and Use of Proceeds
Not applicable.
D. Risk
Factors
You should carefully consider
the risks described below before making an investment decision. Additional risks not presently known to us or that we currently deem immaterial
may also impair our business operations. Our business, financial condition or results of operations could be materially and adversely
affected by any of these risks. The trading price and value of our ordinary shares could decline due to any of these risks, and you may
lose all or part of your investment. This Annual Report also contains forward‑looking statements that involve risks and uncertainties.
Our actual results could differ materially from those anticipated in these forward‑looking statements as a result of certain factors,
including the risks faced by us described below and elsewhere in this Annual Report.
Summary of Risk Factors
The following is a summary of certain, but
not all, of the risks that could adversely affect our business, operations and financial results. If any of the risks actually occur,
our business could be materially impaired, the trading price of our ordinary shares and warrants could decline, and you could lose all
or part of your investment.
|
• |
We have a limited operating history and may be unable to achieve or sustain profitability or accurately predict our future results.
|
|
• |
We have a history of losses and expect to incur significant expenses and continuing losses for the foreseeable future. |
|
• |
We expect to invest substantially in research and development (“R&D”) for the purpose of developing and commercializing
new services, and these investments could significantly reduce our profitability or increase our losses and may not generate revenue for
us. |
|
• |
If we do not develop enhancements to our services and introduce new services that achieve market acceptance, our growth, business,
results of operations and financial condition could be adversely affected. |
|
• |
If we are unsuccessful at investing in growth opportunities, our business could be materially and adversely affected. |
|
• |
We may need to raise additional funds in the future in order to execute our business plan and these funds may not be available to
us when we need them. If we cannot raise additional funds when we need them, our business, prospects, financial condition and operating
results could be negatively affected. |
|
• |
We have experienced rapid growth, and if we fail to effectively manage our growth, then our business, results of operations and financial
condition could be adversely affected. |
|
• |
We rely, in part, on partnerships to grow our business. The partnerships may not produce the expected financial or operating results
we expect. In addition, if we are unable to enter into partnerships or successfully maintain them, our growth may be adversely impacted.
|
|
• |
Our business depends on expanding our base of data consumers and data consumers increasing their use of our services, and our inability
to expand our base of data consumers or any loss of data consumers or decline in their use of our services could materially and adversely
affect our business, results of operations and financial condition. |
|
• |
If we fail to adapt and respond effectively to rapidly changing technology, evolving industry standards, changing regulations, and
changing customer needs, requirements or preferences, our products may become less competitive. |
|
• |
The market for our services and platform is new and unproven, may decline or experience limited growth and is dependent in part on
consumers continuing to adopt our platform and use our services. |
|
• |
We rely on the ability to access data from external providers at reasonable terms and prices. Our data providers might restrict our
use of, or refuse to license, data, which could lead to our inability to access certain data or provide certain services and, as a result,
materially and adversely affect our operating results and financial condition. |
|
• |
If we are unable to expand our relationships with existing OEMs, vehicle fleet operators and mobile
data providers, micromobility data providers, Electric Vehicle’s (EV) charging data providers, and add new OEMs, vehicle fleet operators,
data providers and mobile devices, our business, results of operations and financial condition could be adversely affected. |
|
• |
The other matters described in the full “Risk Factors” section below. |
Risks Related to Our Business
We have a limited operating
history and may be unable to achieve or sustain profitability or accurately predict our future results.
We have been focused on developing a platform
to provide vehicle data services since our formation in 2015. Our limited operating history makes it difficult to evaluate our current
business and future prospects and may increase the risk of our investment. Further, because we have limited historical financial data
and operate in a rapidly evolving market, any predictions about our future revenue and expenses may not be as accurate as they would be
if we had a longer operating history or operated in a more predictable market.
Our losses in prior periods and accumulated
deficit reflect the investments we have made to date to grow our business. We expect to have significant operating expenses in the future
to further support and grow our business, including expanding the range of integrations between our platform and third-party applications
and platforms, expanding our direct and indirect sales capabilities, investing in our infrastructure and R&D and integrating businesses
we acquire. As a result, we may be unable to achieve or sustain profitability or accurately predict our future results. You should not
consider our recent growth in revenue as indicative of our future performance. We cannot assure you that we will achieve profitability
in the future, or that if we do become profitable, that we will sustain profitability.
If we fail to address the risks and difficulties
that we face, including those described elsewhere in this “Risk Factors” section,
our business, financial condition and results of operations could be adversely affected. We have encountered in the past, and will encounter
in the future, risks and uncertainties frequently experienced by growing companies with limited operating histories in rapidly changing
industries. If our assumptions regarding these risks and uncertainties, which we use to plan and operate our business, are incorrect or
change, or if we do not address these risks successfully, our results of operations could differ materially from our expectations and
our business, financial condition and results of operations could be adversely affected.
We have a limited operating
history with a history of losses and expect to incur significant expenses and continuing losses for the foreseeable future.
We have incurred net losses on an annual basis
since our inception. We incurred net losses of approximately $30.9 million and $20.0 million for the years ended December 31, 2021 and
2020, respectively. We believe that we will continue to incur operating and net losses each quarter for the foreseeable future.
We expect to continue to expend substantial
financial and other resources on, among other things:
|
• |
investments in our engineering team, the development of new products, features and functionality and enhancements to our platform;
|
|
• |
expansion of our operations and infrastructure; |
|
• |
increases in our investment in research and development; |
|
• |
increases in our sales and marketing activities and expanding our sales force to cover additional geographies, including outside
the U.S.; and |
|
• |
general administration, including legal, accounting and other expenses related to being a public company. |
These investments may not result in increased
revenue or growth of our business. We also expect that our revenue growth rate will decline over time. Accordingly, we may not be able
to generate sufficient revenue to offset our expected cost increases and achieve and sustain profitability. If we fail to achieve and
sustain profitability, then our business, results of operations and financial condition would be adversely affected.
We expect to invest substantially
in research and development for the purpose of developing and commercializing new services, and these investments could significantly
reduce our profitability or increase our losses and may not generate revenue for us.
Our future growth depends on our ability to
enhance our services and introduce new services that achieve market acceptance and penetrate new markets. Therefore, we plan to incur
substantial research and development costs as part of our efforts to develop and commercialize new services and enhance existing services.
Our research and development expenses were approximately $8.2 million and $12.1 million during the years ended December 31, 2020 and 2021,
respectively, and are likely to grow in the future. Future research and development expenses will adversely affect our future results
of operations. In addition, our research and development program may not produce successful results, and even if we do successfully produce
new services, those services may not achieve market acceptance, create additional revenue or become profitable.
If we do not develop enhancements
to our services and introduce new services that achieve market acceptance, our growth, business, results of operations and financial condition
could be adversely affected.
Our ability to attract new data consumers
and increase revenue from existing data consumers depends in part on our ability to enhance and improve our existing services, increase
adoption and usage of our services, and introduce new services. The success of any enhancements or new services depends on several factors,
including timely completion, adequate quality testing, actual performance quality, market accepted pricing levels and overall market acceptance.
Enhancements, such as additional technology
features, and new services, such as software licenses and data services, that we develop may not be introduced in a timely or cost-effective
manner, may contain errors or defects, may have interoperability difficulties with our platform or other services or may not achieve the
broad market acceptance necessary to generate significant revenue. Furthermore, our ability to increase the usage of our services depends,
in part, on the development of new uses for our services, which may be outside of our control. Our ability to generate usage of additional
services by our data consumers may also require increasingly sophisticated and more costly sales efforts and result in a longer sales
cycle. If we are unable to successfully enhance our existing services to meet evolving data consumer requirements, increase adoption and
usage of our services, develop new services, or if our efforts to increase the usage of our services are more expensive than we expect,
then our business, results of operations and financial condition would be adversely affected.
If we are unsuccessful
at investing in growth opportunities, our business could be materially and adversely affected.
We continue to invest significantly in growth
opportunities, including the development of new technologies and services to meet our clients’ needs. For example, we are expanding
our service offerings by providing additional services along the data value chain in the form of data storage, enrichment and visualization,
adding additional technology features for licensing to OEM’s and data consumers, and offering mobility analytics, insights and intelligence
solutions. We also continue to invest significantly in growth opportunities outside the U.S., and in particular Latin America and the
Asia-Pacific. We consider our presence in these markets to be an important component of our growth strategy.
There is no assurance that our growth strategy
will be successful or will produce a sufficient or any return on our investments. Further, if we are unable to develop new technologies
and services, data consumers do not use or license our new technologies and services, our new technologies and services do not work as
intended or there are delays in the availability or adoption of our new technologies and services, then we may not be able to grow our
business or growth may occur slower than anticipated. Additionally, although we expect continued growth in the vehicle data market, such
growth may occur more slowly or not at all, and we may not benefit from our investments.
We plan to fund growth opportunities with
cash from operations or from future financings. There can be no assurance that those sources will be available in sufficient amounts to
fund future growth opportunities when needed.
Any of the foregoing could have a material
and adverse effect on our operating results and financial condition.
We may need to raise additional
funds in the future in order to execute our business plan and these funds may not be available to us when we need them. If we cannot raise
additional funds when we need them, our business, prospects, financial condition and operating results could be negatively affected.
We may require additional capital in the future
in order to fund our growth strategy or to respond to technological advancements, competitive dynamics or technologies, data consumer
demands, business opportunities, challenges, acquisitions or unforeseen circumstances. We may also determine to raise equity or debt financing
for other reasons. For example, in order to further enhance business relationships with current or potential customers or partners, we
may issue equity or equity-linked securities to such current or potential customers or partners.
We may not be able to timely secure additional
debt or equity financing on favorable terms, or at all. If we raise additional funds through the issuance of equity or convertible debt
or other equity-linked securities, our existing shareholders could experience significant dilution. In addition, any debt financing we
obtain in the future, whether in the form of a credit facility or otherwise, could involve restrictive covenants relating to our capital
raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and
to pursue business opportunities, including potential acquisitions. If we are unable to obtain adequate financing or financing on terms
satisfactory to us when we requires it, our ability to continue to grow or support our business and to respond to business challenges
could be significantly limited. In addition, because our decision to issue debt or equity in the future will depend on market conditions
and other factors beyond our control, we cannot predict or estimate the amount, timing, nature or success of our future capital raising
efforts.
We have experienced rapid
growth, and if we fail to effectively manage our growth, then our business, results of operations and financial condition could be adversely
affected.
We have experienced substantial growth in
our business since inception. For example, we have experienced significant growth in the number of data consumers, usage and amount of
data that our platform and associated infrastructure support. This growth has placed and may continue to place significant demands on
our corporate culture, operational infrastructure and management. Any failure to manage our anticipated growth and organizational changes
in a manner that preserves the key aspects of our culture could hurt our chance for future success, including our ability to recruit and
retain personnel, and effectively focus on and pursue our corporate objectives. This, in turn, could adversely affect our business, results
of operations and financial condition.
In addition, our ability to manage our operations
and future growth will require us to continue to improve our operational, financial and management controls, compliance programs and reporting
systems. We are currently in the process of strengthening our compliance programs, including our compliance programs
related to export controls, privacy and cybersecurity and anti-corruption. We may not be able to implement improvements in an efficient
or timely manner and may discover deficiencies in existing controls, programs, systems and procedures, which could have an adverse effect
on our business, reputation and financial results.
We rely, in part, on partnerships
to grow our business. The partnerships may not produce the expected financial or operating results we expect. In addition, if we are unable
to enter into partnerships or successfully maintain them, our growth may be adversely impacted.
Historically, we have relied, in part, on
a variety of partnerships covering different focus areas and data to grow our business. The majority of the partnerships allow us to provide
data or data services as part of services provided by the partners, thereby increasing our customer base without the need to address the
customers directly.
Any partnerships we enter into may not be
on favorable terms, and the expected benefits and growth from these partnerships may not materialize as planned. We may have difficulty
assimilating new partnerships and their services, technologies, IT systems and personnel into our operations. IT and data security profiles
of partners may not meet our technological standards and may take longer to integrate and remediate than planned. This may result in significantly
greater transaction and integration costs for future partnerships than we have experienced historically, or it could mean that we will
not pursue certain partnerships where the costs of integration and remediation are too significant. These difficulties could disrupt our
ongoing business, increase our expenses and adversely affect our operating results and financial condition.
Despite our past experience, opportunities
to grow our business through partnerships may not be available to us in the future.
Historically, three customers
have accounted for a material portion of our revenues and, therefore, the loss of those customers could materially and adversely affect
our business, results of operations and financial condition.
Hylabs Ltd (“Hylabs”), Mitsubishi
Motors Corporation (“Mitsubishi”), and Neotec Bio Ltd (“Neotec”), accounted for approximately 28%, 14% and 13%,
respectively, of our revenue in 2021. As of the third quarter of 2021, our Vehicle-Data Marketplace Agreement and IOT HUB Software License
Agreement with Mitsubishi are no longer in place. The loss of these customers could result in a significant reduction of our anticipated
revenues, which could materially and adversely affect our business, results of operations and financial condition.
Our business depends on
expanding our base of data consumers and data consumers increasing their use of our services, and our inability to expand our base of
data consumers or any loss of data consumers or decline in their use of our services could materially and adversely affect our business,
results of operations and financial condition.
Our ability to grow and generate revenue growth
depends, in part, on our ability to expand our base of data consumers and maintain and grow our relationships with existing data consumers
and to have them increase their usage of our platform. If we are not successful in attracting new data consumers or our existing data
consumers do not increase their use of our services, then our revenue growth may decline, and our results of operations may be harmed.
Data consumers are charged based on the usage of our services. Many of our data consumers do not have long-term contractual financial
commitments to us and, therefore, most of our data consumers may reduce or cease their use of our services at any time without penalty
or termination charges. Data consumers may terminate or reduce their use of our services for any number of reasons, including if they
are not satisfied with our services, the value proposition of our services or our ability to meet their needs and expectations. We cannot
accurately predict data consumers’ usage levels and our inability to attract new data consumers or the loss of data consumers or
reductions in their usage levels of our services may each have a negative impact on our business, results of operations and financial
condition and may slow our growth in the future if customers are not satisfied with our products, the value proposition of our products
or our ability to meet their needs and expectations. If a significant number of data consumers cease using, or reduce their usage of our
services, then we may be required to spend significantly more on sales and marketing than we currently plan to spend in order to maintain
or increase revenue from data consumers. Such additional sales and marketing expenditures could adversely affect our business, results
of operations and financial condition.
If we fail to adapt and
respond effectively to rapidly changing technology, evolving industry standards, changing regulations, and changing customer needs, requirements
or preferences, our products may become less competitive.
The market for communications in general,
and vehicle data, is subject to rapid technological change, evolving industry standards, changing regulations, as well as changing customer
needs, requirements and preferences. The success of our business will depend, in part, on our ability to adapt and respond effectively
to these changes on a timely basis. If we are unable to develop new services that satisfy our data consumers and provide enhancements
and new features for our existing services that keep pace with rapid technological and industry change, our business, results of operations
and financial condition could be adversely affected. If new technologies emerge that are able to deliver competitive services at lower
prices, more efficiently, more conveniently or more securely, such technologies could adversely impact our ability to compete effectively.
Our platform must integrate with a variety
of network, hardware, mobile and software platforms and technologies, and we need to continuously modify and enhance our services and
platform to adapt to changes and innovation in these technologies. If data providers, partners or data consumers adopt new software platforms
or infrastructure, we may be required to develop new or enhanced versions of our services to work with those new platforms or infrastructure.
This development effort may require significant resources, which would adversely affect our business, results of operations and financial
condition. Any failure of our services and platform to operate effectively with evolving or new platforms and technologies could reduce
the demand for our services. If we are unable to respond to these changes in a cost-effective manner, our services may become less marketable
and less competitive or obsolete, and our business, results of operations and financial condition could be adversely affected.
The market for our services
and platform is new and unproven and may decline or experience limited growth and is dependent in part on data consumers continuing to
adopt our platform and use our services.
We have been developing and providing a cloud
based platform, through which we serve as a vehicle data marketplace and mobility intelligence platform, which enables car manufacturers,
drivers and service providers to be part of a connected ecosystem. This market is relatively new and unproven and is subject to a number
of risks and uncertainties. We believe that our future success will significantly depend in large part on the growth, if any, of this
market. The utilization of a data marketplace and mobility intelligence platform to obtain data on vehicles, drivers and the environment
is still relatively new, and consumers may not recognize the need for, or benefits of, our services and platform. Moreover, if they do
not recognize the need for and benefits of our services and platform, they may decide to adopt alternative services to satisfy some portion
of their business needs. In order to grow our business and extend our market position, we intend to focus on educating potential customers
about the benefits of our services and platform, expanding the range of our services and bringing new technologies to market to increase
market acceptance and use of our platform. Our ability to expand the market that our services and platform address depends upon a number
of factors, including the cost, performance and perceived value associated with such services and platform. The market for our services
and platform could fail to grow significantly or there could be a reduction in demand for our services as a result of a lack of acceptance,
technological challenges, competing services, decreases in spending by current and prospective customers, weakening economic conditions
and other causes. If our market does not experience significant growth, or demand for our services decreases, then our business, results
of operations, and financial condition could be adversely affected.
We rely on the ability
to access data from external providers at reasonable terms and prices. Our data providers might restrict our use of, or refuse to license,
data, which could lead to our inability to access certain data or provide certain services and, as a result, materially and adversely
affect our operating results and financial condition.
We rely extensively upon vehicle data from
a variety of external providers to provide our services, including data from vehicle manufacturers (“OEMs”), vehicle fleet
operators, telematics service providers (“TSPs”) and mobile devices. Our data providers could increase restrictions on our
use of such data, increase the price they charge us for data, or refuse altogether to license the data to us. In addition, during the
term of any data supply contract, providers may fail to adhere to our data quality control standards or fail to deliver data. Further,
although no single individual data provider is material to our business, if a number of providers collectively representing a significant
amount of data that we use for one or more of our services were to impose additional contractual restrictions on our use of or access
to data, fail to adhere to our quality-control standards, repeatedly fail to deliver data or refuse to provide data, now or in the future,
our ability to provide those services to our clients could be materially adversely impacted, which may harm our operating results and
financial condition. In addition, if a number of providers collectively representing a significant amount of data that we use are no longer
able or are unwilling to provide us with certain data, we may need to find alternative providers.
If we are unable to identify and contract
with suitable alternative data providers and efficiently and effectively integrate these data sources into our service offerings, we could
experience service disruptions, increased costs, and reduced quality and availability of our services. Moreover, some of our data providers
compete with us in certain service offerings, which may make us vulnerable to unpredictable price increases from them and they may elect
to stop providing data to us. Significant price increases could have a material adverse effect on our operating margins and our financial
position, in particular if we are unable to arrange for substitute replacement data suppliers on favorable economic terms. There can be
no assurance that we would be able to obtain data from alternative suppliers if our current suppliers become unavailable. Loss of such
access or the availability of data in the future on commercially reasonable terms, or at all, may reduce the quality and availability
of our services, which could have a material adverse effect on our business, financial condition, and results of operations.
Some of our data suppliers face similar regulatory
requirements as we do and, consequently, they may cease to be able to provide data to us or may substantially increase the fees they charge
us for this data, which may make it financially burdensome or impossible for us to acquire data that is necessary to offer services. Many
consumer advocates, privacy advocates, and government regulators believe that existing laws and regulations do not adequately protect
privacy or ensure the accuracy of personal data. As a result, such advocates and regulators are seeking further restrictions on the dissemination
or commercial use of personal information to the public and private sectors, as well as contemplating requirements relative to data accuracy
and the ability of consumers to opt to have their personal data removed from databases such as ours. Any future laws, regulations, or
other restrictions limiting the dissemination or use of personal information may reduce the quality and availability of the data necessary
for our products and services, which could have a material adverse effect on our business, financial condition, and results of operations.
If we are unable to expand
our relationships with existing OEMs and vehicle fleet operators and add new OEMs and vehicle fleet operators and other data providers,
our business, results of operations and financial condition could be adversely affected.
We believe that the continued growth of our
business depends in part upon developing and expanding strategic relationships with OEMs and vehicle fleet operators and other data providers.
OEMs and vehicle fleet operators provide much of the data we provide as part of our services. As demand grows for data-driven products
and services and customer groups join the ecosystem and expand their usage of external data, we will need to be able to provide the data
in order to meet increasing market needs. Our strategy also includes contracting with other data providers to provide commercial vehicle,
environmental and micro-mobility data.
If we fail to expand our relationships with
existing OEMs and vehicle fleet operators or establish relationships with new OEMs and vehicle fleet operators and other data providers
in a timely and cost effective manner, or at all, we will be unable to grow our business and meet our customers’ needs, which would
adversely affect our business, results of operations and financial condition.
Any failure to offer high
quality data user support may adversely affect our relationships with our data consumers and prospective data consumers, and adversely
affect our business, results of operations and financial condition.
Many of our customers depend on our customer
support team to assist them in deploying our services effectively to help them to resolve post-deployment issues quickly, and to provide
ongoing support. If we do not devote sufficient resources or are otherwise unsuccessful in assisting our data consumers effectively, we
could adversely affect our ability to retain existing data consumers and could prevent prospective data consumers from adopting our services.
We may be unable to respond quickly enough to accommodate short-term increases in demand for customer support. We also may be unable to
modify the nature, scope and delivery of our customer support to compete with changes in the support services provided by our competitors.
Increased demand for customer support, without corresponding revenue, could increase costs and adversely affect our business, results
of operations and financial condition. Our revenues are highly dependent on our business reputation. Any failure to maintain high quality
customer support, or a market perception that we do not maintain high quality customer support, could erode customer trust and adversely
affect our reputation, business, results of operations and financial condition.
Adverse conditions in
the automotive industry or the global economy more generally could have adverse effects on our results of operations.
Our business is directly affected by, and
significantly dependent on, business cycles and other factors affecting the global automobile industry and global economy generally. Automotive
production and sales are highly cyclical and depend on general economic conditions and other factors, including consumer spending and
preferences, changes in interest rates and credit availability, consumer confidence, fuel costs, fuel availability, environmental impact,
governmental incentives and regulatory requirements and political volatility, especially in energy-producing countries and growth markets.
In addition, automotive production and sales can be affected by our automotive OEM customers’ ability to continue operating in response
to challenging economic conditions and in response to regulatory requirements and other factors. The volume of automotive production in
North America, Europe and the rest of the world has fluctuated, sometimes significantly, from year to year.
We expect any such fluctuations to give rise
to fluctuations in the demand for our products. Reductions in automotive sales could slow the increasing connectivity of vehicles, as
new vehicles have greater connectivity that older ones, and would slow the demand for data-driven products and services. In addition,
a reduction in the number of vehicles would reduce the potential number of data consumers for our services. Any significant adverse change
in automotive production and sales could have a material adverse effect on our business, results of operations and financial condition.
The market in which we
participate is intensely competitive, and if we do not compete effectively, our business, results of operations and financial condition
could be harmed.
The market for vehicle data is rapidly evolving
and highly competitive, with relatively low barriers to entry in some areas. Our future success will depend on our ability to maintain
our lead by continuing to develop and protect from infringement advanced technology in a timely manner and to stay ahead of existing and
new competitors. We currently face competition from a range of companies seeking to establish and develop relationships with OEMs and
other data providers. Our competitors are also working to advance technology, performance and innovation in their development of new and
improved solutions.
Our direct competitors focus on data provision,
services to manage and structure data and consent management. Our indirect competitors include service providers and personal use case
companies, which focus on enabling services via APIs and connecting service providers with customers’ personally identifiable information
(“PII”), as well as industry-specific data and service providers for location-based services, fleet management and repair
and maintenance. Additionally, technology companies, such as Google and Alibaba, and vehicle operating system providers, such as Huawei
and Baidu, are potential competitors to our platform, as are companies providing cloud computing platforms and APIs, such as Amazon Web
Services and Microsoft. In addition, we face potential competition from our vertically integrated data providers which may elect to directly
provide more data-related services as part of their business.
The principal competitive factors in our market
include completeness of offering, ease of integration and programmability, product features, platform scalability, and performance and
cost.
Some of our competitors and potential competitors
are larger and have greater name recognition, longer operating histories, more established customer relationships, larger budgets and
significantly greater resources than we do. In addition, some have the operating flexibility to bundle competing products and services
at little or no perceived incremental cost, including offering them at a lower price as part of a larger sales transaction. As a result,
our competitors may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards
or customer requirements.
With the introduction of new services and
new market entrants, we expect competition to intensify in the future. Increased competition may result in pricing pressure and reduced
margins and may impede our ability to increase the sales of our products or cause us to lose market share, any of which will adversely
affect our business, results of operations and financial condition.
We expect our results
of operations to fluctuate on a quarterly and annual basis, which could cause the price of our securities to fluctuate or decline.
Our quarterly results of operations have fluctuated
in the past and may vary significantly in the future. As such, historical comparisons of our operating results may not be meaningful.
Accordingly, the results of any one quarter should not be relied upon as an indication of future performance. Our quarterly financial
results may fluctuate as a result of a variety of factors, many of which are outside of our control and may not fully reflect the underlying
performance of our business. These fluctuations could adversely affect our ability to meet our expectations or those of securities analysts
or investors. If we do not meet these expectations for any period, the value of our business and our securities could decline significantly.
Factors that may cause these quarterly fluctuations include, without limitation, those listed below:
|
• |
The timing of revenues generated in any quarter; |
|
• |
Pricing changes we may adopt to drive market adoption or in response to competitive pressure; |
|
• |
Our ability to retain our existing customers and attract new customers; |
|
• |
Our ability to integrate acquired companies and businesses; |
|
• |
Our ability to develop, introduce and sell services and products in a timely manner that meet customer requirements; |
|
• |
Disruptions in our sales channels or termination of our relationship with partners; |
|
• |
Delays in customers’ purchasing cycles or deferments of customers’ purchases in anticipation of new services or updates
from us or our competitors; |
|
• |
Fluctuations in demand pressures for our products; |
|
• |
The mix of services sold in any quarter; |
|
• |
The duration of the global COVID-19 pandemic and the time it takes for economic recovery; |
|
• |
The timing and rate of broader market adoption of our data service platform; |
|
• |
Market acceptance of our services and further technological advancements by our competitors and other market participants;
|
|
• |
Any change in the competitive dynamics of our markets, including consolidation of competitors, regulatory developments and new market
entrants; |
|
• |
Changes in the source, cost, availability of and regulations pertaining to materials we use; |
|
• |
Adverse litigation, judgments, settlements or other litigation-related costs, or claims that may give rise to such costs; and
|
|
• |
General economic, industry and market conditions, including trade disputes. |
Changes in tax laws or
exposure to additional income tax liabilities could affect our future profitability.
Factors that could materially affect our future,
effective tax rates, include but are not limited to:
|
• |
Changes in tax laws or the regulatory environment; |
|
• |
Changes in accounting and tax standards or practices; |
|
• |
Changes in the composition of operating income by tax jurisdiction; and |
|
• |
Our operating results before taxes. |
Because we do not have a long history of operating
at our present scale and we have significant expansion plans, our effective tax rate may fluctuate in the future. Future effective tax
rates could be affected by operating losses in jurisdictions where no tax benefit can be recorded under U.S. GAAP, changes in the composition
of earnings in countries with differing tax rates, changes in deferred tax assets and liabilities, or changes in tax laws.
Changes in our product
mix may impact our financial performance.
Our financial performance can be affected
by the mix of services we sell during a given period. If our sales include more of the lower gross margin services than higher gross margin
products, our results of operations and financial condition may be adversely affected. There can be no guarantees that we will be able
to successfully alter our service mix so that we are selling more of our high gross margin products. In addition, our earnings forecasts
and guidance are expected to include assumptions about product sales mixes. If actual results vary from this projected product mix of
sales, our results of operations and financial condition could be adversely affected.
We are highly dependent
on the services of our CEO and founder, Ben Volkow.
We are highly dependent on our CEO and founder,
Ben Volkow. Mr. Volkow has acted as our Chief Executive Officer since our inception, and as such, is deeply involved in all aspects of
our business, including product development. The loss of Mr. Volkow would adversely affect our business because this could make it more
difficult to, among other things, compete with other market participants, manage our R&D activities and retain existing customers
or cultivate new ones. Negative public perception of, or negative news related to, Mr. Volkow may adversely affect our brand, relationship
with customers or standing in the industry.
Our business depends on
our ability to attract and retain highly skilled personnel and senior management.
Competition for highly-skilled personnel is
often intense, especially in Israel, where our principal office is located, and we may incur significant costs to attract them. We may
face challenges in attracting or retaining qualified personnel to fulfill our current or future needs. We have, from time to time, experienced,
and we expect to continue to experience, difficulty in hiring and retaining highly skilled employees with appropriate qualifications.
In addition, job candidates and existing employees often consider the value of the equity awards they receive in connection with their
employment. If the perceived value of our equity or equity awards declines, it may adversely affect our ability to retain highly skilled
employees. Our success depends in part on the attraction, retention and motivation of executive personnel critical to the business and
our operations. If we fail to attract new personnel or fail to retain and motivate our current personnel, we could face disruptions in
our operations, strategic relationships, key information, expertise or know-how and unanticipated recruitment and onboarding costs, and
our business and future growth prospects could be adversely affected.
Our sales and operations
in international markets expose us to operational, financial and regulatory risks.
A core component of our growth strategy is
international expansion. While we have committed resources to expanding our international operations and sales channels, these efforts
may not be successful. International operations are subject to a number of other risks, including:
|
• |
Exchange rate fluctuations; |
|
• |
Political and economic instability, international terrorism and anti-American sentiment, particularly in emerging markets;
|
|
• |
Global or regional health crises, such as the COVID-19 pandemic; |
|
• |
Potential for violations of anti-corruption laws and regulations, such as those related to bribery and fraud; |
|
• |
Preference for locally branded products, and laws and business practices favoring local competition; |
|
• |
Potential consequences of, and uncertainty related to, the “Brexit” process in the United Kingdom, which could lead to
additional expense and complexity in doing business there; |
|
• |
Delayed revenue recognition; |
|
• |
Less effective protection of intellectual property; |
|
• |
Stringent regulation of the autonomous or other systems, or products using our products and rigorous consumer protection and product
compliance regulations, including but not limited to General Data Protection Regulation in the European Union, European competition law,
the Restriction of Hazardous Substances directive, the Waste Electrical and Electronic Equipment directive and the European Ecodesign
directive that are costly to comply with, and may vary from country to country; |
|
• |
Difficulties and costs of staffing and managing foreign operations; |
|
• |
Import and export laws and the impact of tariffs; and |
|
• |
Changes in local tax and customs duty laws or changes in the enforcement, application or interpretation of such laws. |
As a result of these and other factors, international
expansion may be more difficult, take longer and not generate the results we anticipate, which could negatively impact our growth and
business.
Our business is subject
to the risks of earthquakes, fire, floods and other natural catastrophic events, global pandemics, and interruptions by man-made problems,
such as network security breaches, computer viruses or terrorism. Material disruptions of our business or information systems resulting
from these events could adversely affect our operating results.
A significant natural disaster, such as an
earthquake, fire, flood or significant power outage or other similar events, such as infectious disease outbreaks or pandemic events,
including the COVID-19 pandemic, could have an adverse effect on our business and operating results. The COVID-19 pandemic has produced
meaningful operational challenges and we expect to continue to experience disruptions in our business. COVID-19 has heightened many of
the other risks described herein, such as the demand for our products, our ability to achieve or maintain profitability and our ability
to raise additional capital in the future. Despite the implementation of network security measures, our networks also may be vulnerable
to computer viruses, break-ins and similar disruptions from unauthorized tampering with our solutions. In addition, natural disasters,
acts of terrorism or war, including the ongoing invasion of Ukraine by Russia, could cause disruptions in our remaining business operations,
our or our customers’ or partners’ businesses, our data providers or the economy as a whole. We also rely on information technology
systems to communicate among our workforce and with third parties. Any disruption to our communications, whether caused by a natural disaster
or by man-made problems, such as power disruptions, could adversely affect our business. We do not have a formal disaster recovery plan
or policy in place and does not currently require that our suppliers’ partners have such plans or policies in place. To the extent
that any such disruptions result in delays or cancellations of orders or impede our suppliers’ ability to timely deliver product
components, or the deployment of our products, our business, operating results and financial condition would be adversely affected.
We have been, and may
in the future be, adversely affected by the global COVID-19 pandemic, the duration and economic, governmental and social impact of which
is difficult to predict, which may significantly harm our business, prospects, financial condition and operating results.
The ongoing COVID-19 pandemic as well as other
possible health epidemics and outbreaks could result in a material adverse impact on our or our customers’ business operations including
reduction or suspension of operations in the U.S. or certain parts of the world. Our engineering operations, among others, cannot all
be conducted in a remote working structure and often require on-site access to materials and equipment.
We have customers with international operations
in varying industries. Depending upon the duration of the ongoing COVID-19 pandemic and the associated business interruptions, our data
consumers, data suppliers and partners may suspend or delay their engagement with us, which could result in a material adverse effect
on our financial condition. Our response to the ongoing COVID-19 pandemic may prove to be inadequate and we may be unable to continue
our operations in the manner we had prior to the outbreak, and may endure interruptions, reputational harm, or delays in our product development
and shipments, all of which could have an adverse effect on our business, operating results, and financial condition. In addition, when
the pandemic subsides, we cannot assure you as to the timing of any economic recovery, which could continue to have a material adverse
effect on our target markets and our business.
Breaches of our networks
or systems, or those of our data providers or partners, could degrade our ability to conduct our business, compromise the integrity of
our products, platform and data, result in significant data losses and the theft of our intellectual property, damage our reputation,
expose us to liability to third parties and require us to incur significant additional costs to maintain the security of our networks
and data.
We depend upon our IT systems to conduct virtually
all of our business operations, ranging from our internal operations and research and development activities to our marketing and sales
efforts and communications with our customers and business partners. Individuals or entities may attempt to penetrate our network security,
or that of our platform, and to cause harm to our business operations, including by misappropriating proprietary information or that of
our data suppliers, data consumers, partners and employees or to cause interruptions of our products and platform. In general, cyberattacks
and other malicious internet-based activity continue to increase in frequency and magnitude, and cloud-based companies have been targeted
in the past and are likely to continue to be targeted in the future. In addition to threats from traditional computer hackers, malicious
code (such as malware, viruses, worms, and ransomware), employee theft or misuse, password spraying, phishing, credential stuffing, and
denial-of-service attacks, we also face threats from sophisticated organized crime, nation-state, and nation-state supported actors who
engage in attacks (including advanced persistent threat intrusions) that add to the risk to our systems (including those hosted on AWS
or other cloud services), internal networks, our customers’ systems and the information that they store and process.
While we devote significant financial and
personnel resources to implement and maintain security measures, because the techniques used by such individuals or entities to access,
disrupt or sabotage devices, systems and networks change frequently and may not be recognized until launched against a target, we may
be required to make further investments over time to protect data and infrastructure as cybersecurity threats develop, evolve and grow
more complex over time. We may also be unable to anticipate these techniques, and we may not become aware in a timely manner of security
breaches, which could exacerbate any damage we experience. Additionally, we depend upon our employees and contractors to appropriately
handle confidential and sensitive data, including customer data, and to deploy our IT resources in a safe and secure manner that does
not expose our network systems to security breaches or the loss of data. Any data security incidents, including internal malfeasance or
inadvertent disclosures by our employees or a third party’s fraudulent inducement of our employees to disclose information, unauthorized
access or usage, introduction of a virus or similar breach or disruption of us or our service providers, such as AWS, could result in
loss of confidential information, damage to our reputation, erosion of customer trust, loss of customers, litigation, regulatory investigations,
fines, penalties and other liabilities. Accordingly, if our cybersecurity measures or our service providers fail to protect against unauthorized
access, attacks (which may include sophisticated cyberattacks), or the mishandling of data by our employees and contractors, then our
reputation, business, results of operations and financial condition could be adversely affected. While we maintain errors, omissions,
and cyber liability insurance policies covering certain security and privacy damages, we cannot be certain that our existing insurance
coverage will continue to be available on acceptable terms or will be available in sufficient amounts to cover the potentially significant
losses that may result from a security incident or breach or that the insurer will not deny coverage as to any future claim.
Any disruption of service
at the Cloud Service Providers that host our platform could harm our business.
We currently host our platform primarily using
AWS, and, to a lesser extent, Microsoft Azure and Google Cloud, referred to as our Cloud Service Providers. Our continued growth depends
on the ability of our customers to access our platform at any time and within an acceptable amount of time.
Although we have disaster recovery plans,
including the use of multiple Cloud Service Provider locations, any incident affecting our Cloud Service Provider infrastructure that
may be caused by fire, flood, severe storm, earthquake or other natural disasters, cyber-attacks, terrorist or other attacks, and other
similar events beyond our control could negatively affect our platform and our ability to deliver our services to our customers. A prolonged
Cloud Service Provider disruption affecting our platform for any of the foregoing reasons would negatively impact our ability to serve
our customers and could damage our reputation with current and potential customers, expose us to liability, cause us to lose customers
or otherwise harm our business. We may also incur significant costs for using alternative equipment or taking other actions in preparation
for, or in reaction to, events that damage the Cloud Service Providers we use.
In the event that our Cloud Service Provider
service agreements are terminated, or there is a lapse of service, we would experience interruptions in access to our platform as well
as significant delays and additional expense in arranging new facilities and services and/or re-architecting our solutions for deployment
on a different cloud infrastructure, which would adversely affect our business, operating results and financial condition.
Climate change and related
environmental issues may have an adverse effect on our business, financial condition and operating results.
Climate change related events, such as increasing
temperatures, rising sea levels and changes to patterns and intensity of wildfires, hurricanes, floods, other storms and severe weather-related
events and natural disasters, may have an adverse effect on our business, financial condition and operating results. We recognize that
there are inherent climate related risks regardless of how and where we conduct our operations. For example, a catastrophic natural disaster
could negatively impact the locations of our customers and suppliers. Access to clean water and reliable energy in the communities where
we conduct our operations is critical to us. Accordingly, a natural disaster has the potential to disrupt our and our customers’
businesses and may cause us to experience work stoppages, project delays, financial losses and additional costs to resume operations,
including increased insurance costs or loss of cover, legal liability and reputational losses.
Risks Related to Our Intellectual Property
We may not be able to
adequately protect or enforce our intellectual property rights or prevent unauthorized parties from copying or reverse engineering our
solutions. Our efforts to protect and enforce our intellectual property rights and prevent third parties from violating our rights may
be costly.
The success of our services and our business
depends in part on our ability to obtain patents and other intellectual property rights and maintain adequate legal protection for our
products in the United States and other international jurisdictions. We rely on a combination of patent, copyright, service mark, and
trade secret laws, as well as confidentiality procedures and contractual restrictions, to establish and protect our proprietary rights,
all of which provide only limited protection. We cannot assure you that any patents will be issued with respect to our currently pending
patent applications, including in a manner that gives us adequate defensive protection or competitive advantages, if at all, or that any
of our patents will not be challenged, invalidated or circumvented. We have filed for patents in the United States and in certain international
jurisdictions, but such protections may not be available in all countries in which we operate or in which we seek to enforce our intellectual
property rights or may be difficult to enforce in practice. We cannot be certain that the steps we have taken will prevent unauthorized
use of our technology or the reverse engineering of our technology. Moreover, others may independently develop technologies that are competitive
to us or infringe our intellectual property.
Protecting against the unauthorized use of
our intellectual property, products and other proprietary rights is expensive and can be difficult, particularly with respect to international
jurisdictions. Unauthorized parties may attempt to copy or reverse engineer our solutions or certain aspects of our solutions that are
considered proprietary. Litigation may be necessary in the future to enforce or defend our intellectual property rights, to prevent unauthorized
parties from copying or reverse engineering our solutions, to determine the validity and scope of the proprietary rights of others or
to block the importation of infringing products into the U.S. Any such litigation, regardless of merit, could be costly, divert the attention
of management and may not ultimately be resolved in our favor.
Effective patent, trademark, service mark,
copyright and trade secret protection may not be available in every country in which our products are available and competitors based
in other countries may sell infringing products in one or more markets. An inability to adequately protect and enforce our intellectual
property and other proprietary rights or an inability to prevent authorized parties from copying or reverse engineering our smart vision
solutions or certain aspects of our solutions that we consider proprietary could adversely affect our business, operating results, financial
condition and prospects.
In addition to patented
technology, we rely on our unpatented proprietary technology, trade secrets, processes and know-how.
We rely on proprietary information (such as
trade secrets, know-how and confidential information) to protect intellectual property that may not be patentable or subject to copyright,
trademark, trade dress or service mark protection, or that we believe is best protected by means that do not require public disclosure.
We generally seek to protect this proprietary
information by entering into confidentiality agreements, or consulting, services or employment agreements that contain non-disclosure
and non-use provisions with our employees, consultants, contractors and third parties. However, we may fail to enter into the necessary
agreements, and even if entered into, these agreements may be breached or may otherwise fail to prevent disclosure, third-party infringement
or misappropriation of our proprietary information, may be limited as to their term and may not provide an adequate remedy in the event
of unauthorized disclosure or use of proprietary information. We have limited control over the protection of trade secrets used by our
current or future manufacturing partners and suppliers and could lose future trade secret protection if any unauthorized disclosure of
such information occurs. In addition, our proprietary information may otherwise become known or be independently developed by our competitors
or other third parties. To the extent that our employees, consultants, contractors, advisors and other third parties use intellectual
property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions. Costly
and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or
maintain protection for our proprietary information could adversely affect our competitive business position. Furthermore, laws regarding
trade secret rights in certain markets where we operate may afford limited or no protection to our trade secrets.
We also rely on physical and electronic security
measures to protect our proprietary information, but we cannot provide assurance that these security measures will not be breached or
that these measures will provide adequate protection. There is a risk that third parties may obtain and improperly utilize our proprietary
information to our competitive disadvantage. We may not be able to detect or prevent the unauthorized use of such information or take
appropriate and timely steps to enforce our intellectual property rights.
Third-party claims that
we are infringing intellectual property, whether successful or not, could subject us to costly and time-consuming litigation or expensive
licenses, and our business could be adversely affected.
Although we have pending patents related to
our products, a number of companies, both within and outside of the vehicle data service industry, hold other patents covering systems
and methods for processing vehicle requests. In addition to these patents, participants in this industry typically also protect their
technology, especially embedded software, through copyrights and trade secrets. As a result, there is frequent litigation based on allegations
of infringement, misappropriation or other violations of intellectual property rights. We may receive, in the future, inquiries from other
intellectual property holders and may become subject to claims that we infringe their intellectual property rights, particularly as we
expand our presence in the market. In addition, third parties may claim that the names and branding of our products infringe their trademark
rights in certain countries or territories. If such a claim were to prevail, we may be liable for damages, be forced to change the branding
of our products in the affected territories, or may be required to pay royalties for a license (if a license is available at all).
We currently have a number of agreements in
effect pursuant to which we have agreed to defend, indemnify and hold harmless our customers, suppliers, and partners from damages and
costs which may arise from the infringement by our products of third-party patents or other intellectual property rights. The scope of
these indemnity obligations varies, but may, in some instances, include indemnification for damages and expenses, including attorneys’
fees. Our insurance may not cover all intellectual property infringement claims. A claim that our products infringe a third party’s
intellectual property rights, even if without merit, could adversely affect our relationships with our customers, may deter future customers
from purchasing our products and could expose us to costly litigation and settlement expenses. Even if we are not a party to any litigation
between a customer and a third party relating to infringement by our products, an adverse outcome in any such litigation could make it
more difficult for us to defend our products against intellectual property infringement claims in any subsequent litigation in which we
are a named party. Any of these results could adversely affect our brand and operating results.
Our defense of intellectual property rights
claims brought against us or our customers, suppliers and channel partners, with or without merit, could be time-consuming, expensive
to litigate or settle, divert management resources and attention and force us to acquire intellectual property rights or licenses, which
may involve substantial royalty or other payments and may not be available on acceptable terms or at all. Further, a party making such
a claim, if successful, could secure a judgment that requires us to pay substantial damages or obtain an injunction. An adverse determination
also could invalidate our intellectual property rights and adversely affect our ability to offer our products to our customers and may
require that we procure or develop substitute products that do not infringe, which could require significant effort and expense. Any of
these events could adversely affect our business, operating results, financial condition and prospects.
Legal and Regulatory Risks Related to Our
Business
Our operations and
platform are subject to a variety of U.S. and international laws and regulations, including those regarding privacy, data protection and
information security, and our data consumers may be subject to regulations related to the handling and transfer of certain types of sensitive
and confidential information. Any failure of our platform and operations to comply with or enable data consumers to comply with applicable
laws and regulations would harm our business, results of operations and financial condition.
Privacy is at the core of our technology.
As a result, the platform and marketplace were designed to take into consideration the requirements of the General Data Protection Regulation
2016/679 (“GDPR”) and CCPA. We have and continue to invest time and resources, including the review of our technology and
systems to ensure our taking into consideration the requirements of applicable data privacy laws.
We and our data providers and data consumers
may be subject to privacy and data protection-related laws and regulations that impose obligations in connection with the collection,
processing and use of personal data. The U.S. federal and various state and foreign governments have adopted or proposed limitations on,
or requirements regarding, the collection, distribution, use, security and storage of personal data of individuals. The U.S. Federal Trade
Commission and numerous state attorneys general are applying federal and state consumer protection laws to impose standards on the online
collection, use and dissemination of data, and to the security measures applied to such data.
Similarly, many foreign countries and governmental
bodies, including the EU member states, have laws and regulations concerning the collection and use of personal data obtained from EU
residents or by businesses operating within their jurisdiction. For example, from January 1, 2021, we are subject to the GDPR and also
the UK GDPR, which, together with the amended UK Data Protection Act 2018, retains the GDPR in UK national law. Laws and regulations in
these jurisdictions apply broadly to the collection, use, storage, disclosure and security of personal data that identifies or may be
used to identify an individual, such as names, telephone numbers, email addresses, vehicle identification number, GPS location and, in
some jurisdictions, IP addresses and other online identifiers.
For example, the GDPR, and national implementing
legislation in the European Economic Area (“EEA”) member states and the United Kingdom, impose a strict data protection compliance
regime including: providing detailed disclosures about how personal data is collected and processed (in a concise, intelligible and easily
accessible form); demonstrating that an appropriate legal basis is in place or otherwise exists to justify data processing activities;
granting new rights for data subjects in regard to their personal data (including the right to be “forgotten” and the right
to data portability), as well as enhancing current rights (e.g., data subject access requests); introducing the obligation to notify data
protection regulators or supervisory authorities (and in certain cases, affected individuals) of significant data breaches; defining for
the first time pseudonymized (i.e., key-coded) data; imposing limitations on retention of personal data; maintaining a record of data
processing; and complying with the principal of accountability and the obligation to demonstrate compliance through policies, procedures,
training and audit.
Noncompliance with GDPR and the UK GDPR can
respectively trigger fines equal to or greater of €20 million or 4% of global annual revenues. In addition to the foregoing, a breach
of the GDPR or UK GDPR could result in regulatory investigations, reputational damage, orders to cease/ change our processing of our data,
enforcement notices, and/ or assessment notices (for a compulsory audit). We may also face civil claims including representative actions
and other class action type litigation (where individuals have suffered harm), potentially amounting to significant compensation or damages
liabilities, as well as associated costs, diversion of internal resources, and reputational harm. Although we believe that our Otonomo
Vehicle Data Platform currently meets the material requirements of GDPR, to the extent the requirements of GDPR change or are expanded,
we may need to invest significant time and resources, including a review of our technology and systems currently in use against such changed
or expanded requirements of GDPR. There are also additional EU laws and regulations (and member states implementations thereof) which
govern the protection of consumers and of electronic communications. If our efforts to comply with GDPR or other applicable EU laws and
regulations are not successful, we may be subject to penalties and fines, as well as the other action as noted above, that would adversely
impact our business and results of operations, and our ability to conduct business in the EU could be significantly impaired.
We are also subject to European Union rules
with respect to cross-border transfers of personal data out of the EEA and the United Kingdom. Recent legal developments in Europe have
created complexity and compliance uncertainty regarding certain transfers of information from the EU to the United States. On July 16,
2020, the Court of Justice of the European Union (the “CJEU”) invalidated the EU-US Privacy Shield Framework. The CJEU also
imposed substantial requirements upon the continued use of standard contractual clauses for data transfers from the EU to the United States,
which may make the use of standard contractual clauses difficult or impossible to use under some circumstances. These recent developments
may require us to review and amend the legal mechanisms by which we make and/ or receive personal data transfers to/ in the United States.
As supervisory authorities issue further guidance on personal data export mechanisms, including circumstances where the standard contractual
clauses cannot be used, and/or start taking enforcement action, we could suffer additional costs, complaints and/or regulatory investigations
or fines, and/or if we are otherwise unable to transfer personal data between and among countries and regions in which we operate, it
could affect the manner in which we provide our services, the geographical location or segregation of our relevant systems and operations,
and could adversely affect our financial results. We and our customers are at risk of enforcement actions taken by European regulators
until such point in time that we are able to ensure that all data transfers to the United States (and other countries deemed to be “third
countries”) from the EU are legitimized.
In addition, we also may encounter additional
complexity with respect to data privacy and data transfers in relation to the U.K. Following the U.K.’s withdrawal from the EU,
the U.K. will become a “third country” for the purposes of data transfers from the EU to the United Kingdom following the
expiration of the four to six-month personal data transfer grace period (from January 1, 2021) set out in the EU and UK Trade and Cooperation
Agreement, unless a relevant adequacy decision is adopted in favor of the U.K. (which would allow data transfers without additional measures).
If we are unable to transfer personal data between and among countries and regions in which we operate or may operate in the future, it
could affect the manner in which we provide our services or could adversely affect our financial results.
We are also subject to evolving EU and U.K.
privacy laws on cookies and e-marketing. In the EU and the U.K., regulators are increasingly focusing on compliance with requirements
in the online behavioral advertising ecosystem, and current national laws that implement the European Directive 2002/58/EC, (the “ePrivacy
Directive”) are highly likely to be replaced by an EU regulation known as the ePrivacy Regulation which will significantly increase
fines for non-compliance. In the EU and the UK, informed consent is required for the placement of a cookie or similar technologies on
a user’s device and for direct electronic marketing. The GDPR also imposes conditions on obtaining valid consent, such as a prohibition
on pre-checked consents and a requirement to ensure separate consents are sought for each type of cookie or similar technology. While
the text of the ePrivacy Regulation is still under development, a recent European court decision and regulators’ recent guidance
are driving increased attention to cookies and tracking technologies. If regulators start to enforce the strict approach in recent guidance,
this could lead to substantial costs, require significant systems changes, limit the effectiveness of our marketing activities, divert
the attention of our technology personnel, adversely affect our margins, increase costs and subject us to additional liabilities. Regulation
of cookies and similar technologies, and any decline of cookies or similar online tracking technologies as a means to identify and potentially
target users, may lead to broader restrictions and impairments on our marketing and personalization activities and may negatively impact
our efforts to understand users.
Furthermore, outside of the EU, we continue
to see increased regulation of data privacy and security, including the adoption of more stringent subject matter specific state laws
in the United States. For example, on July 8, 2019, Brazil enacted the General Data Protection Law (Lei Geral de Proteção de
Dados Pessoais) (Law No. 13,709/2018) (“LGPD”) regulating the processing of personal data, which was enacted in August 2020.
Also, on June 28, 2018, California enacted the California Consumer Privacy Act (“CCPA”), which took effect on January 1, 2020.
The CCPA gives California residents expanded rights to access and delete their personal information, opt out of certain personal information
sharing, and receive detailed information about how their personal information is used. The CCPA provides for civil penalties for violations,
as well as a private right of action for data breaches that is expected to increase data breach litigation. Although we believe that our
Otonomo Vehicle Data Platform currently meets the requirements of the CCPA, to the extent the requirements of CCPA change or are expanded
may increase our compliance costs and potential liability. Some observers have noted that the CCPA could mark the beginning of a trend
toward more stringent state privacy legislation in the U.S., which could increase our potential liability and adversely affect our business.
Furthermore, California voters approved the California Privacy Rights Act (“CPRA”) on November 3, 2020, which will amend and
expand the CCPA, including by providing consumers with additional rights with respect to their personal data. The CPRA will come into
effect on January 1, 2023, applying to information collected by businesses on or after January 1, 2022. We continue to invest time and
resources in reviewing our technology and systems to meet the evolving data privacy regulations, be they GDPR, CCPA or others. Restrictions
on the collection, use, sharing or disclosure of personal data or additional requirements and liability for security and data integrity
may require us to modify our business practices, limit our ability to develop new products and features and subject us to increased compliance
obligations and regulatory scrutiny.
In addition, additional jurisdictions may
impose data localization laws, which require personal information, or certain subcategories of personal information to be stored in the
jurisdiction of origin. These regulations may inhibit our ability to expand into those markets or prohibit us from continuing to offer
our marketplace in those markets without significant additional costs.
The uncertainty and changes in the requirements
of multiple jurisdictions may increase the cost of compliance, delay or reduce demand for our platform, restrict our ability to offer
our marketplace in certain locations, limit our ability to transfer data between jurisdictions or subject us to sanctions, by national
data protection regulators, all of which could harm our business, financial condition and results of operations. Any such regulations
may also restrict OEMs or other data providers from collecting, processing and sharing vehicle data which may adversely impact our business.
Additionally, although we endeavor to have our platform and operations comply with applicable laws and regulations, we expect that there
will continue to be new proposed laws, rules of self-regulatory bodies, regulations and industry standards concerning privacy, data protection
and information security in the United States, the European Union and other jurisdictions, and we cannot yet determine the impact such
future laws, rules, regulations and standards may have on our business or that of our data providers and data consumers, which may indirectly
impact us. Furthermore, these and other obligations may be modified, they may be interpreted and applied in an inconsistent manner from
one jurisdiction to another, and they may conflict with one another, other regulatory requirements, contractual commitments or our internal
practices. As a result, it is possible that we or our platform or operations or the businesses of our data providers and data consumers,
may not be, or may not have been, compliant with each such applicable law, regulation and industry standard and compliance with such new
laws or to changes to existing laws may impact our business and practices, require us to expend significant resources to adapt to these
changes and modify our platform and business, or to stop offering our platform in certain countries. These developments could adversely
affect our business, results of operations and financial condition.
We also may be bound by contractual obligations
relating to our collection, use and disclosure of personal and other data or may find it necessary or desirable to join industry or other
self-regulatory bodies or other privacy or data protection-related organizations that require compliance with their rules pertaining to
privacy and data protection.
Any failure or perceived failure by us, our
platform or operations, or our data providers and data consumers, to comply with new or existing U.S., EU or other applicable privacy
or data security laws, regulations, policies, industry standards or legal obligations, or any security incident that results in the unauthorized
access to, or acquisition, share or transfer of, personal data or other customer data may result in governmental investigations, inquiries,
enforcement actions and prosecutions, private litigation, fines and penalties, adverse publicity or potential loss of business.
Risks Related to Being a Public Company
We incur increased costs
as a result of operating as a public company, and our management devotes substantial time to new compliance initiatives.
We are a new public company subject to reporting
requirements in the United States, and we incur significant legal, accounting and other expenses that we did not incur as a private company,
and these expenses may increase even more after we are no longer an emerging growth company, as defined in Section 2(a) of the Securities
Act. As a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Wall
Street Reform and Consumer Protection Act, as well as rules adopted, and to be adopted, by the SEC and Nasdaq. Our management and other
personnel devote a substantial amount of time to these compliance initiatives. Moreover, we expect these rules and regulations to substantially
increase our legal and financial compliance costs and to make some activities more time-consuming and costly. The increased costs will
increase our net loss. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain
director and officer liability insurance and we may be forced to accept reduced policy limits or incur substantially higher costs to maintain
the same or similar coverage. We cannot predict or estimate the amount or timing of additional costs we may incur to respond to these
requirements. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve
on our board of directors, our board committees or as executive officers.
A market for our securities
may not be sustained, which would adversely affect the liquidity and price of our securities.
The price of our securities may fluctuate
significantly due to, among other things, general market and economic conditions. An active trading market for our securities may not
be sustained. In addition, the price of our securities can vary due to general economic conditions and forecasts, our general business
condition and the release of our financial reports. Additionally, if our securities become delisted from Nasdaq and are quoted on the
OTC Bulletin Board (an inter-dealer automated quotation system for equity securities that is not a national securities exchange), the
liquidity and price of our securities may be more limited than if we were quoted or listed on the NYSE, Nasdaq or another national securities
exchange. You may be unable to sell your securities unless a market can be established or sustained.
Our internal controls
over financial reporting may not be effective and our independent registered public accounting firm may not be able to certify as to their
effectiveness, which could have a significant and adverse effect on our business and reputation.
We are subject to the reporting requirements
of the Securities Act, the Exchange Act, the Sarbanes-Oxley Act and the rules and regulations of Nasdaq. We expect that the requirements
of these rules and regulations will continue to increase our legal, accounting and financial compliance costs, make some activities more
difficult, time-consuming and costly, and place significant strain on our personnel, systems and resources.
The Sarbanes-Oxley Act requires, among other
things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. We are continuing
to develop and refine our disclosure controls, internal control over financial reporting and other procedures that are designed to ensure
that information required to be disclosed by us in the reports that we file with the SEC is recorded, processed, summarized and reported
within the time periods specified in SEC rules and forms, and that information required to be disclosed in reports under the Exchange
Act is accumulated and communicated to our principal executive and financial officers.
Our current controls and any new controls
that we develop may become inadequate because of changes in conditions in our business. Further, weaknesses in our internal controls may
be discovered in the future. Any failure to develop or maintain effective controls, or any difficulties encountered in their implementation
or improvement, could adversely affect our operating results or cause us to fail to meet our reporting obligations and may result in a
restatement of our financial statements for prior periods. Any failure to implement and maintain effective internal controls also could
adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports
regarding the effectiveness of our internal control over financial reporting that we are required to include in the reports we files with
the SEC under Section 404 of the Sarbanes-Oxley Act. Ineffective disclosure controls and procedures and internal control over financial
reporting could also cause investors to lose confidence in our reported financial and other information.
In order to maintain and improve the effectiveness
of our disclosure controls and procedures and internal control over financial reporting, we have expended and anticipate that we will
continue to expend significant resources, including accounting-related costs, and provide significant management oversight. Any failure
to maintain the adequacy of our internal controls, or consequent inability to produce accurate financial statements on a timely basis,
could increase our operating costs and could materially and adversely affect our ability to operate our business. In the event that our
internal controls are perceived as inadequate or that we are unable to produce timely or accurate financial statements, investors may
lose confidence in our operating results and the price of our securities could decline. In addition, if we are unable to continue to meet
these requirements, the company may not be able to obtain or maintain listing on Nasdaq.
Our independent registered public accounting
firm is not required to formally attest to the effectiveness of our internal control over financial reporting until after we are no longer
an emerging growth company and become an accelerated filer. At such time, our independent registered public accounting firm may issue
a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating.
Any failure to maintain effective disclosure controls and internal control over financial reporting could have a material and adverse
effect on the company’s business and operating results.
Risks Related to Ownership of Our Securities
Our Articles and Israeli
law could prevent a takeover that shareholders consider favorable and could also reduce the market price of our securities.
Certain provisions of Israeli law and the
our Articles could have the effect of delaying or preventing a change in control and may make it more difficult for a third party to acquire
us or for our shareholders to elect different individuals to our board of directors, even if doing so would be beneficial to our shareholders,
and may limit the price that investors may be willing to pay in the future for our ordinary shares. For example, Israeli corporate law
regulates mergers and requires that a tender offer be effected when certain thresholds of percentage ownership of voting power in a company
are exceeded (subject to certain conditions). Further, Israeli tax considerations may make potential transactions undesirable to us or
to some of our shareholders whose country of residence does not have a tax treaty with Israel granting tax relief to such shareholders
from Israeli tax.
We do not intend to pay dividends for the
foreseeable future. Accordingly, you may not receive any return on investment unless you sell your ordinary shares for a price greater
than the price you paid for your ordinary shares.
We have never declared or paid any cash dividends
on our shares. We currently intend to retain all available funds and any future earnings for use in the operation of our business and
do not anticipate paying any dividends on the ordinary shares in the foreseeable future. Consequently, you may be unable to realize a
gain on your investment except by selling sell such shares after price appreciation, which may never occur.
Our board of directors has sole discretion
whether to pay dividends. If our board of directors decides to pay dividends, the form, frequency, and amount will depend upon our future,
operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that
our directors may deem relevant. The Israeli Companies Law, 1999 (the “Companies Law”) imposes restrictions on our ability
to declare and pay dividends. See Item 10.B, “Dividend and Liquidation Rights” for
additional information. Payment of dividends may also be subject to Israeli withholding taxes. See the section titled “Certain
Material Israeli Tax Considerations” for additional information.
The market price and trading
volume of the ordinary shares may be volatile.
The stock markets, including Nasdaq on which
we list the ordinary shares and warrants under the symbols “OTMO,” and “OTMOW,” respectively, have from time to
time experienced significant price and volume fluctuations. Even if an active, liquid and orderly trading market is sustained for the
ordinary shares and warrants, the market price of the ordinary shares and warrants may be volatile and could decline significantly. In
addition, the trading volume in the ordinary shares and warrants may fluctuate and cause significant price variations to occur. If the
market price of the ordinary shares and warrants declines significantly, you may be unable to resell your shares or warrants at or above
the market price of the ordinary shares and warrants. We cannot assure you that the market price of the ordinary shares and warrants will
not fluctuate widely or decline significantly in the future in response to a number of factors, including, among others, the following:
|
• |
the realization of any of the risk factors presented in this annual report; |
|
• |
actual or anticipated differences in our estimates, or in the estimates of analysts, for our revenues, Adjusted EBITDA, results of
operations, level of indebtedness, liquidity or financial condition; |
|
• |
additions and departures of key personnel; |
|
• |
failure to comply with the requirements of Nasdaq; |
|
• |
failure to comply with the Sarbanes-Oxley Act or other laws or regulations; |
|
• |
future issuances, sales, resales or repurchases or anticipated issuances, sales, resales or repurchases, of our securities including
due to the expiration of contractual lock-up agreements; |
|
• |
publication of research reports about us; |
|
• |
the performance and market valuations of other similar companies; |
|
• |
failure of securities analysts to initiate or maintain coverage of us, changes in financial estimates by any securities analysts
who follow us or our failure to meet these estimates or the expectations of investors; |
|
• |
new laws, regulations, subsidies, or credits or new interpretations of existing laws applicable to us; |
|
• |
commencement of, or involvement in, litigation involving us; |
|
• |
broad disruptions in the financial markets, including sudden disruptions in the credit markets; |
|
• |
speculation in the press or investment community; |
|
• |
actual, potential or perceived control, accounting or reporting problems; |
|
• |
changes in accounting principles, policies and guidelines; and |
|
• |
other events or factors, including those resulting from infectious diseases, health epidemics and pandemics (including the ongoing
COVID-19 public health emergency), natural disasters, war, acts of terrorism or responses to these events. |
In the past, securities class-action litigation
has often been instituted against companies following periods of volatility in the market price of their shares. This type of litigation
could result in substantial costs and divert our management’s attention and resources, which could have a material adverse effect
on us.
Our quarterly operating results may fluctuate
significantly and could fall below the expectations of securities analysts and investors due to seasonality and other factors, some of
which are beyond our control, resulting in a decline in our stock price.
Our quarterly operating results may fluctuate
significantly because of several factors, including:
|
• |
labor availability and costs for hourly and management personnel; |
|
• |
profitability of our products, especially in new markets and due to seasonal fluctuations; |
|
• |
changes in interest rates; |
|
• |
impairment of long-lived assets; |
|
• |
macroeconomic conditions, both internationally and locally; |
|
• |
changes in consumer preferences and competitive conditions; |
|
• |
expansion to new markets; and |
|
• |
fluctuations in commodity prices. |
If securities or industry
analysts do not publish or cease publishing research or reports about us, our business, or our market, or if they change their recommendations
regarding the ordinary shares adversely, then the price and trading volume of our securities could decline.
The trading market for our securities is and
will be influenced by the research and reports that industry or financial analysts publish about our business. We do not control these
analysts, or the content and opinions included in their reports. As a new public company, we may be slow to attract research coverage
and the analysts who publish information about our securities will have had relatively little experience with us, which could affect their
ability to accurately forecast our results and make it more likely that we fail to meet their estimates. In the event we obtain industry
or financial analyst coverage, if any of the analysts who cover us issues an inaccurate or unfavorable opinion regarding us, the price
of our securities would likely decline. In addition, the share prices of many companies in the technology industry have declined significantly
after those companies have failed to meet, or significantly exceed, the financial guidance publicly announced by the companies or the
expectations of analysts. If our financial results fail to meet, or significantly exceed, our announced guidance or the expectations of
analysts or public investors, analysts could downgrade our securities or publish unfavorable research about us. If one or more of these
analysts cease coverage of us or fail to publish reports on us regularly, our visibility in the financial markets could decrease, which
in turn could cause the price of our securities or trading volume to decline.
Sales of a substantial
number of our securities in the public market by selling securityholders and/or by our existing securityholders could cause the price
of our ordinary shares and warrants to fall.
We have registered for resale by certain selling
shareholders (a) 103,831,650 ordinary shares and (b) 5,200,000 warrants. Sales of a substantial number of ordinary shares and/or warrants
in the public market by such selling securityholders and/or by our other existing securityholders, or the perception that those sales
might occur, could depress the market price of our ordinary shares and warrants and could impair our ability to raise capital through
the sale of additional equity securities. We are unable to predict the effect that such sales may have on the prevailing market price
of our ordinary shares and warrants.
Our failure to meet the
continued listing requirements of Nasdaq could result in a delisting of our securities.
If we fail to satisfy the continued listing
requirements of Nasdaq such as the corporate governance requirements or the minimum closing bid price requirement, Nasdaq may take steps
to delist our securities. Such a delisting would likely have a negative effect on the price of the securities and would impair your ability
to sell or purchase the securities when you wish to do so. In the event of a delisting, we can provide no assurance that any action taken
by us to restore compliance with listing requirements would allow our securities to become listed again, stabilize the market price or
improve the liquidity of our securities, prevent our securities from dropping below the Nasdaq minimum bid price requirement or prevent
future non-compliance with Nasdaq’s listing requirements. Additionally, if our securities become delisted from Nasdaq for any reason,
and are quoted on the OTC Bulletin Board, an inter-dealer automated quotation system for equity securities that is not a national securities
exchange, the liquidity and price of our securities may be more limited than if we were quoted or listed on Nasdaq or another national
securities exchange. You may be unable to sell your securities unless a market can be established or sustained.
We qualify as an emerging growth company within
the meaning of the Securities Act, and we take advantage of certain exemptions from disclosure requirements available to emerging growth
companies, which make our securities less attractive to investors and make it more difficult to compare our performance with other public
companies.
We are eligible to be treated as an emerging
growth company, as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act. Under the JOBS Act, emerging growth companies
can delay adopting new or revised financial accounting standards until such time as those standards apply to private companies. We intend
to take advantage of this extended transition period under the JOBS Act for adopting new or revised financial accounting standards.
For as long as we continue to be an emerging
growth company, we may also take advantage of certain exemptions from various reporting requirements that are applicable to other public
companies that are not emerging growth companies, including presenting only limited selected financial data and not being required to
comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act. As a result, our shareholders may not have
access to certain information that they may deem important. We could be an emerging growth company for up to five years, although circumstances
could cause us to lose that status earlier, including if our total annual gross revenue exceeds $1.07 billion, if we issue more than $1.0
billion in non-convertible debt securities during any three-year period, or if before that time we are a “large accelerated filer”
under U.S. securities laws.
We cannot predict if investors find our securities
less attractive because we rely on these exemptions. If some investors find our securities less attractive as a result, there may be a
less active trading market for our securities and the price of our securities may be more volatile. Further, there is no guarantee that
the exemptions available to us under the JOBS Act will result in significant savings. To the extent that we choose not to use exemptions
from various reporting requirements under the JOBS Act, we will incur additional compliance costs, which may impact our financial condition.
We are a foreign private
issuer and, as a result, we are not subject to U.S. proxy rules and is subject to Exchange Act reporting obligations that, to some extent,
are more lenient and less frequent than those of a U.S. domestic public company.
We report under the Exchange Act as a non-U.S.
company with foreign private issuer status. Because we qualify as a foreign private issuer under the Exchange Act, we are exempt from
certain provisions of the Exchange Act that are applicable to U.S. domestic public companies, including (1) the sections of the Exchange
Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act, (2)
the sections of the Exchange Act requiring insiders to file public reports of their share ownership and trading activities and liability
for insiders who profit from trades made in a short period of time and (3) the rules under the Exchange Act requiring the filing with
the SEC of quarterly reports on Form 10-Q containing unaudited financial and other specified information, although we are subject to Israeli
laws and regulations with regard to certain of these matters and intend to furnish comparable quarterly information on Form 6-K. In addition,
foreign private issuers are not required to file their annual report on Form 20-F until 120 days after the end of each fiscal year, while
U.S. domestic issuers that are accelerated filers are required to file their annual report on Form 10-K within 75 days after the end of
each fiscal year and U.S. domestic issuers that are large accelerated filers are required to file their annual report on Form 10-K within
60 days after the end of each fiscal year. Foreign private issuers are also exempt from Regulation FD, which is intended to prevent issuers
from making selective disclosures of material information. As a result of all of the above, you may not have the same protections afforded
to shareholders of a company that is not a foreign private issuer.
We may lose our foreign
private issuer status in the future, which could result in significant additional costs and expenses.
As discussed above, we are a foreign private
issuer, and therefore are not required to comply with all of the periodic disclosure and current reporting requirements of the Exchange
Act. The determination of foreign private issuer status is made annually on the last business day of an issuer’s most recently completed
second fiscal quarter, and, accordingly, the next determination will be made with respect to us on June 30, 2022. In the future, we would
lose our foreign private issuer status if (1) more than 50% of our outstanding voting securities are owned by U.S. residents and (2) a
majority of our directors or executive officers are U.S. citizens or residents, or we fail to meet additional requirements necessary to
avoid loss of foreign private issuer status. If we lose our foreign private issuer status, we will be required to file with the SEC periodic
reports and registration statements on U.S. domestic issuer forms, which are more detailed and extensive than the forms available to a
foreign private issuer. We would also have to mandatorily comply with U.S. federal proxy requirements, and our officers, directors and
principal shareholders will become subject to the short-swing profit disclosure and recovery provisions of Section 16 of the Exchange
Act. In addition, we would lose our ability to rely upon exemptions from certain corporate governance requirements under the listing rules
of Nasdaq. As a U.S. listed public company that is not a foreign private issuer, we would incur significant additional legal, accounting
and other expenses that we will not incur as a foreign private issuer.
As we are a “foreign
private issuer” and intend to follow certain home country corporate governance practices, our shareholders may not have the same
protections afforded to shareholders of companies that are subject to all Nasdaq corporate governance requirements.
As a foreign private issuer, we have the option
to follow certain home country corporate governance practices rather than those of Nasdaq, provided that we disclose the requirements
we are not following and describe the home country practices we are following. We intend to rely on this “foreign private issuer
exemption” with respect to the Nasdaq rules for shareholder meeting quorums and Nasdaq rules requiring shareholder approval. We
may in the future elect to follow home country practices with regard to other matters. As a result, our shareholders may not have the
same protections afforded to shareholders of companies that are subject to all Nasdaq corporate governance requirements.
We may issue additional
ordinary shares or other equity securities without seeking approval of our shareholders, which would dilute your ownership interests and
may depress the market price of the ordinary shares.
We have warrants outstanding to purchase up
to an aggregate of 13,825,000 ordinary shares. Further, we may choose to seek third party financing to provide additional working capital
for our business, in which event we may issue additional equity securities. We may also issue additional ordinary shares or other equity
securities of equal or senior rank in the future for any reason or in connection with, among other things, future acquisitions, the redemption
of outstanding warrants or repayment of outstanding indebtedness, without shareholder approval, in a number of circumstances.
The issuance of additional ordinary shares
or other equity securities of equal or senior rank would have the following effects:
|
• |
our shareholders’ proportionate ownership interest in us will decrease; |
|
• |
the amount of cash available per share, including for payment of dividends in the future, may decrease; |
|
• |
the relative voting strength of each previously outstanding ordinary share may be diminished; and |
|
• |
the market price of the ordinary shares may decline. |
The IRS may not agree
that we should be treated as a non-U.S. corporation for U.S. federal income tax purposes.
Under current U.S. federal income tax law,
a corporation generally will be considered to be a U.S. corporation for U.S. federal income tax purposes if it is created or organized
in the United States or under the law of the United States or of any State. Accordingly, under generally applicable U.S. federal income
tax rules, we, who are incorporated and tax resident in Israel, would generally be classified as a non-U.S. corporation for U.S. federal
income tax purposes. Section 7874 of the Code and the Treasury regulations promulgated thereunder, however, contain specific rules that
may cause a non-U.S. corporation to be treated as a U.S. corporation for U.S. federal income tax purposes. If it were determined that
we are treated as a U.S. corporation for U.S. federal income tax purposes under Section 7874 of the Code and the Treasury regulations
promulgated thereunder, we would be liable for U.S. federal income tax on our income in the same manner as any other U.S. corporation
and certain distributions made by us to persons that are not U.S. Holders (as defined below under – Taxation
– United States Federal Income Taxation”) of Otonomo may be subject to U.S. withholding tax.
Based on the terms of the Business Combination
and certain factual assumptions, we do not currently expect to be treated as a U.S. corporation for U.S. federal income tax purposes under
Section 7874 of the Code as a result of the Business Combination. However, the application of Section 7874 of the Code is complex, subject
to detailed regulations (the application of which is uncertain in various respects and would be impacted by changes in such U.S. Treasury
regulations with possible retroactive effect) and subject to certain factual uncertainties, some of which must be finally determined after
the completion of the Business Combination. Accordingly, there can be no assurance that the IRS will not challenge the status of us as
a non-U.S. corporation for U.S. federal income tax purposes under Section 7874 of the Code or that such challenge would not be sustained
by a court.
If the IRS were to successfully challenge
under Section 7874 of the Code our status as a non-U.S. corporation for U.S. federal income tax purposes, we and certain of our shareholders
may be subject to significant adverse tax consequences, including a higher effective corporate income tax rate on us and future withholding
taxes on certain of our shareholders, depending on the application of any applicable income tax treaty that may apply to reduce such withholding
taxes.
You should consult your own advisors regarding
the application of Section 7874 of the Code to the Business Combination and the tax consequences if the classification of us as a non-U.S.
corporation is not respected.
If we or any of our subsidiaries
are characterized as a Passive Foreign Investment Company (“PFIC”) for U.S. federal income tax purposes, U.S. Holders may
suffer adverse tax consequences.
A non-U.S. corporation generally will be treated
as a PFIC for U.S. federal income tax purposes, in any taxable year if either (1) at least 75% of its gross income for such year is passive
income or (2) at least 50% of the value of its assets (generally based on an average of the quarterly values of the assets) during such
year is attributable to assets that produce or are held for the production of passive income. We do not believe we were a PFIC for our
taxable year ending December 31, 2021, and based on the current and anticipated composition of the income, assets and operations of us
and our subsidiaries, we do not believe we will be treated as a PFIC for our current taxable year. However, there can be no assurances
in this regard or any assurances that we will not be treated as a PFIC in any future taxable year. Moreover, the application of the PFIC
rules is subject to uncertainty in several respects, and we cannot
assure you that the IRS will not take a contrary position or that a court will not sustain such a challenge by the IRS.
Whether we are or any of our subsidiaries
is are a PFIC for any taxable year is a factual determination that depends on, among other things, the composition of our income and assets,
and the market value of our and our subsidiaries’ shares and assets. Changes in the composition of our income or composition of
our or any of our subsidiaries’ assets may cause us to be or become a PFIC for the current or subsequent taxable years. Whether
we are treated as a PFIC for U.S. federal income tax purposes is a factual determination that must be made annually at the close of each
taxable year and, thus, is subject to significant uncertainty.
If we are a PFIC for any taxable year, a U.S.
Holder (as defined below under “Taxation – United States Federal Income Taxation”)
of ordinary shares may be subject to adverse tax consequences and may incur certain information reporting obligations. For a further discussion,
see “Taxation – United States Federal Income Taxation —Passive Foreign
Investment Company Rules.” U.S. Holders of ordinary shares and warrants are strongly encouraged to consult their own advisors
regarding the potential application of these rules to us and the ownership of ordinary shares
and/or warrants.
If a U.S. Holder is treated
as owning at least 10% of the ordinary shares, such U.S. Holder may be subject to adverse U.S. federal income tax consequences.
For U.S. federal income tax purposes, if a
U.S. Holder (as defined below under “Taxation – United States Federal Income Taxation”)
is treated as owning (directly, indirectly or constructively) at least 10% of the value or voting power of the ordinary shares, such person
may be treated as a “United States shareholder” with respect to us, or any of our applicable subsidiaries, if we or any such
subsidiary is a “controlled foreign corporation.” If we have one or more U.S. subsidiaries, certain of our non-U.S. subsidiaries
could be treated as a controlled foreign corporation regardless of whether we are treated as a controlled foreign corporation (although
there are recently promulgated final and currently proposed Treasury regulations that may limit the application of these rules in certain
circumstances).
Certain United States shareholders of a controlled
foreign corporation may be required to report annually and include in their U.S. federal taxable income their pro rata share of the controlled
foreign corporation’s “Subpart F income” and, in computing their “global intangible low-taxed income,” “tested
income” and a pro rata share of the amount of certain U.S. property (including certain stock in U.S. corporations and certain tangible
assets located in the United States) held by the controlled foreign corporation regardless of whether such controlled foreign corporation
makes any distributions. The amount includable by a United States shareholder under these rules is based on a number of factors, including
potentially, but not limited to, the controlled foreign corporation’s current earnings and profits (if any), tax basis in the controlled
foreign corporation’s assets, and foreign taxes paid by the controlled foreign corporation on its underlying income. Failure to
comply with these reporting obligations (or related tax payment obligations) may subject such United States shareholder to significant
monetary penalties and may extend the statute of limitations with respect to such United States shareholder’s U.S. federal income
tax return for the year for which reporting (or payment of tax) was due. We cannot provide any assurances that we will assist U.S. Holders
in determining whether we or any of our subsidiaries are treated as a controlled foreign corporation for U.S. federal income tax purposes
or whether any U.S. Holder is treated as a United States shareholder with respect to any of such controlled foreign corporations or furnish
to any holder information that may be necessary to comply with reporting and tax paying obligations if we, or any of our subsidiaries,
is treated as a controlled foreign corporation for U.S. federal income tax purposes.
Risks Related to Our Incorporation and Location
in Israel
Conditions in Israel could
materially and adversely affect our business.
Many of our employees, including certain management
members operate from our offices that are located in Herzliya Pituach, Israel. In addition, a number of our officers and directors are
residents of Israel. Accordingly, political, economic, and military conditions in Israel and the surrounding region may directly affect
our business and operations. In recent years, Israel has been engaged in sporadic armed conflicts with Hamas, an Islamist terrorist group
that controls the Gaza Strip, with Hezbollah, an Islamist terrorist group that controls large portions of southern Lebanon, and with Iranian-backed
military forces in Syria. In addition, Iran has threatened to attack Israel and may be developing nuclear weapons. Some of these hostilities
were accompanied by missiles being fired from the Gaza Strip against civilian targets in various parts of Israel, including areas in which
our employees are located, and negatively affected business conditions in Israel. Any hostilities involving Israel or the interruption
or curtailment of trade between Israel and our trading partners could adversely affect our operations and results of operations.
Our commercial insurance does not cover losses
that may occur as a result of events associated with war and terrorism. Although the Israeli government currently covers the reinstatement
value of direct damages that are caused by terrorist attacks or acts of war, we cannot assure you that this government coverage will be
maintained or that it will sufficiently cover our potential damages. Any losses or damages incurred by us could have a material adverse
effect on our business. Any armed conflicts or political instability in the region would likely negatively affect business conditions
and could harm our results of operations.
Further, in the past, the State of Israel
and Israeli companies have been subjected to economic boycotts. Several countries still restrict business with the State of Israel and
with Israeli companies. These restrictive laws and policies may have an adverse impact on our results of operations, financial condition
or the expansion of our business. A campaign of boycotts, divestment, and sanctions has been undertaken against Israel, which could also
adversely affect our business. Actual or perceived political instability in Israel or any negative changes in the political environment,
may individually or in the aggregate adversely affect the Israeli economy and, in turn, our business, financial condition, results of
operations, and prospects.
In addition, many Israeli citizens are obligated
to perform several weeks of annual military reserve duty each year until they reach the age of 40 (or older, for reservists who are military
officers or who have certain occupations) and, in the event of a military conflict, may be called to active duty. In response to increases
in terrorist activity, there have been periods of significant call-ups of military reservists. It is possible that there will be military
reserve duty call-ups in the future. Our operations could be disrupted by such call-ups, which may include the call-up of members of our
management. Such disruption could materially adversely affect our business, prospects, financial condition, and results of operations.
We may become subject
to claims for remuneration or royalties for assigned service invention rights by our employees, which could result in litigation and adversely
affect our business.
A significant portion of our intellectual
property has been developed by our employees in the course of their employment by us. Under the Israeli Patents Law, 5727-1967 (the “Patents
Law”), inventions conceived by an employee during and as a result of his or her employment with a company are regarded as “service
inventions,” which belong to the employer, absent an agreement between the employee and employer providing otherwise. The Patents
Law also provides that if there is no agreement between an employer and an employee determining whether the employee is entitled to receive
consideration for service inventions and on what terms, this will be determined by the Israeli Compensation and Royalties Committee (the
“Committee”), a body constituted under the Patents Law. Case law clarifies that the right to receive consideration for “service
inventions” can be waived by the employee and that in certain circumstances, such waiver does not necessarily have to be explicit.
The Committee will examine, on a case-by-case basis, the general contractual framework between the parties, using interpretation rules
of the general Israeli contract laws. Further, the Committee has not yet determined one specific formula for calculating this remuneration,
but rather uses the criteria specified in the Patents Law. Although we generally enter into agreements with our employees pursuant to
which such individuals assign to us all rights to any inventions created during and as a result of their employment with us, we may face
claims demanding remuneration in consideration for assigned inventions. As a consequence of such claims, we could be required to pay additional
remuneration or royalties to our current and/or former employees, or be forced to litigate such monetary claims (which will not affect
our proprietary rights), which could negatively affect our business.
Certain tax benefits that
may be available to us, if obtained by us, would require us to continue to meet various conditions and may be terminated or reduced in
the future, which could increase our costs and taxes.
We may be eligible for certain tax benefits
provided to “Preferred Technological Enterprises” under the Israeli Law for the Encouragement of Capital Investments, 5719-1959,
referred to as the Investment Law. If we obtain tax benefits under the “Preferred Technological Enterprises” regime then,
in order to remain eligible for such tax benefits, we will need to continue to meet certain conditions stipulated in the Investment Law
and its regulations, as amended. If these tax benefits are reduced, cancelled or discontinued, our Israeli taxable income may be subject
to the Israeli corporate tax rate of 23% in 2018 and thereafter. Additionally, if we increase our activities outside of Israel through
acquisitions, for example, our activities might not be eligible for inclusion in future Israeli tax benefit programs. See “Certain
Material Israeli Tax Considerations.”
It may be difficult to
enforce a U.S. judgment against us, our officers and directors and the Israeli experts named in this annual report in Israel or the United
States, or to assert U.S. securities laws claims in Israel or serve process on our officers and directors and these experts.
Most of our directors or officers are not
residents of the United States and most of their and our assets are located outside the United States. Service of process upon us or our
non-U.S. resident directors and officers and enforcement of judgments obtained in the United States against us or our non-U.S. directors
and executive officers may be difficult to obtain within the United States. We have been informed by our legal counsel in Israel that
it may be difficult to assert claims under U.S. securities laws in original actions instituted in Israel or obtain a judgment based on
the civil liability provisions of U.S. federal securities laws. Israeli courts may refuse to hear a claim based on a violation of U.S.
securities laws against us or our non-U.S. officers and directors because Israel may not be the most appropriate forum to bring such a
claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law is applicable
to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact, which can be a time-consuming
and costly process. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel addressing
the matters described above. Israeli courts might not enforce judgments rendered outside Israel, which may make it difficult to collect
on judgments rendered against us or our non-U.S. officers and directors.
Moreover, among other reasons, including but
not limited to, fraud or absence of due process, or the existence of a judgment which is at variance with another judgment that was given
in the same matter if a suit in the same matter between the same parties was pending before a court or tribunal in Israel, an Israeli
court will not enforce a non-Israeli judgment if it was given in a state whose laws do not provide for the enforcement of judgments of
Israeli courts (subject to exceptional cases) or if its enforcement is likely to prejudice the sovereignty or security of the State of
Israel.
Your rights and responsibilities
as a shareholder of us will be governed by Israeli law, which may differ in some respects from the rights and responsibilities of shareholders
of U.S. corporations.
We are incorporated under Israeli law. The
rights and responsibilities of holders of the ordinary shares are governed by our Articles and the Companies Law. These rights and responsibilities
differ in some respects from the rights and responsibilities of shareholders in typical U.S. corporations. In particular, pursuant to
the Companies Law each shareholder of an Israeli company has to act in good faith in exercising his or her rights and fulfilling his or
her obligations toward the company and other shareholders and to refrain from abusing his or her power in the company, including, among
other things, in voting at the general meeting of shareholders and class meetings, on amendments to a company’s articles of association,
increases in a company’s authorized share capital, mergers, and transactions requiring shareholders’ approval under the Companies
Law. In addition, a controlling shareholder of an Israeli company or a shareholder who knows that it possesses the power to determine
the outcome of a shareholder vote or who has the power to appoint or prevent the appointment of a director or officer in the Company,
or has other powers toward the Company has a duty of fairness toward the Company. However, Israeli law does not define the substance of
this duty of fairness. There is limited case law available to assist in understanding the implications of these provisions that govern
shareholder behavior.
Our Articles provide that,
unless we consent otherwise, the District Court (Economic Division), located in Tel Aviv, Israel shall be the sole and exclusive forum
for substantially all disputes between us and our shareholders under the Companies Law and the Israeli Securities Law, which could limit
our shareholders’ ability to bring claims and proceedings against, as well as obtain favorable judicial forum for disputes with,
us, our directors, officers and other employees.
The District Court (Economic Division), located
in Tel Aviv, Israel shall be the exclusive forum for (i) any derivative action or proceeding brought on behalf of us, (ii) any action
asserting a claim of breach of fiduciary duty owed by any director, officer or other employee of us to us or our shareholders, or (iii)
any action asserting a claim arising pursuant to any provision of the Companies Law or the Israeli Securities Law. This exclusive forum
provision is intended to apply to claims arising under Israeli Law and would not apply to claims brought pursuant to the Securities Act
or the Exchange Act or any other claim for which U.S. federal courts would have exclusive jurisdiction. Such exclusive forum provision
in our Articles will not relieve us of our duties to comply with federal securities laws and the rules and regulations thereunder, and
our shareholders will not be deemed to have waived our compliance with these laws, rules and regulations. This exclusive forum provision
may limit a shareholders’ ability to bring a claim in a judicial forum of its choosing for disputes with us or our directors, officers
or other employees, which may discourage lawsuits against us, our directors, officers and other employees.
Risks Related to the Neura and The Floow Acquisitions
We may experience difficulties
in integrating the operations of Neura and The Floow into our business and in realizing the expected benefits of the Neura and The Floow
acquisitions.
The success of the Neura Acquisition and the
pending Flow Acquisition (together, the “Acquisitions”) will depend in part on our ability to realize the anticipated business
opportunities from combining the operations of Neura and The Floow with our business in an efficient and effective manner. The integration
process could take longer than anticipated and could result in the loss of key employees, the disruption of each company’s ongoing
businesses, tax costs or inefficiencies, or inconsistencies in standards, controls, information technology systems, procedures and policies,
any of which could adversely affect our ability to maintain relationships with customers, employees or other third parties, or our ability
to achieve the anticipated benefits of the Acquisitions, and could harm our financial performance. If we are unable to successfully or
timely integrate the operations of Neura and The Floow with our business, we may incur unanticipated liabilities and be unable to realize
the revenue growth, synergies and other anticipated benefits resulting from the Acquisitions, and our business, results of operations
and financial condition could be materially and adversely affected.
The pending Floow Acquisition
may not be completed on the currently contemplated timeline or terms, or at all.
Neither we nor The Floow can provide assurance
that the conditions to completing the Floow Acquisition will be satisfied or waived, and accordingly, that the Floow Acquisition will
be completed on the terms or timeline that the parties anticipate or at all. If any condition to the Floow Acquisition is not satisfied,
it could delay or prevent the Floow Acquisition from occurring, and our business, results of operations and financial condition could
be materially and adversely affected.
Failure to complete the
pending Floow Acquisition could have an adverse effect on us.
Either we or The Floow may terminate the Floow
PSA in specified circumstances. If the Floow Acquisition is not completed, our business, results of operations and financial condition
could be materially and adversely affected and, without realizing any of the benefits of having completed the Floow Acquisition, we will
be subject to a number of risks, including the following:
|
• |
the market price of our securities could decline; |
|
• |
we will be required to pay our costs relating to the Floow Acquisition, such as legal, accounting, financial advisor, filing and
integration costs that have already been incurred or will continue to be incurred until the closing of the Floow Acquisition, whether
or not the Floow Acquisition is completed; |
|
• |
if the Floow SPA is terminated and our board of directors seeks another acquisition, our shareholders cannot be certain that we will
be able to find another party willing to enter into a transaction as attractive to us as the Floow Acquisition; |
|
• |
we could be subject to litigation related to any failure to complete the Floow Acquisition or related to any enforcement proceeding
commenced against us to perform our obligations under the Floow SPA; |
|
• |
we will not realize the benefit of the time and resources, financial and otherwise, committed by our management to matters relating
to the Floow Acquisition that could have been devoted to pursuing other beneficial opportunities; and |
|
• |
we may experience reputational harm due to the adverse perception of any failure to successfully complete the Floow Acquisition or
negative reactions from the financial markets or from our suppliers, customers, employees and other commercial relationships. |
Any of these risks could adversely affect
our business, results of operations and financial condition. Similarly, delays in the completion of the Floow Acquisition could, among
other things, result in additional transaction costs, loss of revenue or other negative effects associated with delay and uncertainty
about completion of the Floow Acquisition and could adversely affect our business, results of operations and financial condition.
The pendency of the Floow
Acquisition could adversely affect our and/or The Floow’s businesses and operations.
In connection with the pending Floow Acquisition,
some parties with commercial relationships with both us and Floow may delay or defer decisions, which could adversely affect the revenues,
earnings, funds from operations, cash flows and expenses of us and The Floow, regardless of whether the Floow Acquisition is completed.
Similarly, current and prospective employees of us and The Floow may experience uncertainty about their future roles with the combined
company following the Floow Acquisition, which may adversely affect the ability of each of us and The Floow to attract and retain key
personnel during the pendency of the Floow Acquisition.
Item 4. |
Information on the Company. |
A. History
and Development of the Company
We were incorporated in Israel on December
8, 2015 under the Israeli Companies Law, 5759 1999, and our principal executive office is located at 16 Abba Eban Blvd., Herzliya Pituach
467256, Israel. Our legal and commercial name is Otonomo Technologies Ltd. We are registered with the Israeli Registrar of Companies and
our registration number is 51 53528-13. Our website address is www.otonomo.io, and our telephone number is +(972) 52 432 9955. Information
contained on, or that can be accessed through, our website does not constitute a part of this Annual Report and is not incorporated by
reference herein. We have included our website address in this Annual Report solely for informational purposes. The SEC maintains an Internet
site that contains reports, proxy and information statements, and other information regarding issuers, such as we, that file electronically,
with the SEC at www.sec.gov. Our agent for service of process in the United States is Cogency Global Inc., 122 East 42nd Street, 18th
Floor, New York, NY 10168.
Our website address is https://otonomo.io.
The information contained on the website does not form a part of, and is not incorporated by reference into, this Annual Report.
Capital Expenditures and
Divestitures
For a description of our principal capital
expenditures and divestitures for the two years ended December 31, 2021 and for those currently in progress, see Item 5. “Operating
and Financial Review and Prospects.”
Recent Developments
Consummation of the Business Combination
On January 31, 2021, Otonomo entered into
the Business Combination Agreement with SWAG and Merger Sub. On August 13, 2021, upon consummation of the Business Combination and the
other transactions contemplated by the Business Combination Agreement, Merger Sub merged with and into SWAG, with SWAG surviving the merger
as a wholly owned subsidiary of Otonomo.
The Business Combination was accounted for
as a recapitalization as pre-combination Otonomo was determined to be the accounting acquirer under Financial Accounting Standards Board
(FASB)’s Accounting Standards Codification Topic 805, Business Combinations (ASC 805).
Concurrently with the execution of the Business
Combination Agreement, Otonomo and certain accredited investors (the “PIPE Investors”) entered into a series of subscription
agreements (“Subscription Agreements”). On the Closing Date, the PIPE Investors purchased an aggregate of 14,250,000 ordinary
shares (“PIPE Shares”) at a price per share of $10.00 for gross proceeds to Otonomo of $142,500,000 (collectively, the “PIPE
Investment”).
In addition, concurrently with the execution
of the Business Combination Agreement, Otonomo, certain Otonomo shareholders (the “Selling Shareholders”) and certain accredited
investors (the “Secondary PIPE Investors”) entered into a share purchase agreement (“Share Purchase Agreement”).
On the Closing Date, the Secondary PIPE Investors purchased an aggregate of 3,000,000 ordinary shares (“Secondary PIPE Shares”)
from the Selling Shareholders at a price per share of $10.00 for gross proceeds to the Selling Shareholders of $30,000,000 (collectively,
the “Secondary PIPE”).
Neura Acquisition
On October 4, 2021, pursuant to the Neura
Merger Agreement, Otonomo acquired Neura, a leader in Artificial Intelligence (AI)-powered mobility intelligence. Otonomo acquired 100%
of Neura’s outstanding equity interests for transaction consideration of $46.8 million, including the issuance of the Neura Shares.
Otonomo expanded its mobility intelligence platform to leverage Neura’s advanced analytics powered by the Neura Acquisition enabled
Otonomo to expand its AI and Machine Learning technologies and diverse multi-layered data.
The Floow Acquisition
On February 26, 2022, Otonomo entered into
the Floow SPA to acquire The Floow in a cash and stock deal valued at approximately $69 million, including a performance based earnout
of up to $37.5 million. Under the definitive agreement, the aggregate cash and stock consideration to be paid and issued upon closing
is valued at $31.5 million based on a share price of $2.75. Otonomo may issue additional cash and stock of up to $37.5 million dependent
upon achievement of certain business performance objectives. The acquisition is subject to approval by U.K. regulators and is expected
to close during the second quarter of 2022.
Otonomo believes the combination of vehicle
and mobile data from Otonomo and The Floow will be crucial to enabling innovative, usage-based and behavioral-based insurance products
and to move from “detect and repair” to “predict and prevent” models to create safer, greener and smarter driving
experiences for policy holders. Over the last decade, The Floow has built a portfolio of connected insurance clients, alongside strategic
partnerships with Munich Re and TransUnion. The Floow's data refinery platform enables insurance carriers to introduce “connectivity”
to their products and differentiate their offerings through a more precise understanding of risk in the context of personalized products
and services, improved road safety through driver coaching and timely, accurate roadside assistance.
B.
Business Overview
Company Overview
Otonomo fuels an ecosystem of OEMs, fleets
and more than 100 service providers spanning the transportation, mobility and automotive industries. Our platform securely ingests more
than 4 billion data points per day globally from over 50 million vehicles licensed on the platform and massive amounts of mobility demand
data from multimodal sources, then reshapes and enriches it to accelerate time to market for new services that improve the mobility and
transportation experience. We provide deeper visibility and actionable insights to empower strategic data-driven decisions – taking
the guesswork out of mobility and transportation planning, deployment and operations.
As part of our proprietary data platform,
we have developed a robust suite of software-as-a-service (“SaaS”) offerings that provide both OEMs and service providers
with additional capabilities, and that incorporate vertically specific applications to meet different privacy, regulation, storage, visualization
and data insight needs.
Privacy by design and neutrality are at the
core of our platform, which enables compliance with regulations such as GDPR, CCPA, and other vehicle specific regulations, such as the
EU requirement/directive that OEMs share connected car data with third parties or the Massachusetts’ Right to Repair Act allowing
access to vehicle data for maintenance and repair purposes.
The Otonomo Mobility Platform is utilized
by organizations and businesses across diverse areas, including urban planning, transportation companies, fleet services, insurance companies,
financial institutions, dealerships, and more.
Our headquarters and research and development
center are based in Herzliya, Israel, and we currently have a presence in the United States. Assuming the Floow Acquisition closes, we
will also have a presence in the United Kingdom beginning in the second quarter of 2021.
The Otonomo Vehicle Data
Platform and Marketplace
We deliver the Otonomo Vehicle Data Platform
and marketplace that enables car manufacturers, drivers and service providers to be part of a connected ecosystem. Our vehicle data marketplace
is a neutral intermediary between vehicle data providers and data consumers. It provides secure and equal access to hundreds of data attributes
that reveal insights into driver behavior, vehicle health, road hazards, environmental conditions and traffic trends.
The vehicle data we deliver is rich and may
include, among other data, status attributes for:
|
• |
cabin data, including the state of doors and windows, ADAS, and infotainment data; |
|
• |
engine-related information such as fuel, oil, error codes or battery voltage and state of charge; |
|
• |
maintenance data such as time or distance traveled and diagnostic trouble codes (DTC); |
|
• |
data related to the specific vehicle, like make, model, year and fuel type; |
|
• |
driving data such as location, distance travelled, odometer, heading and speed; and |
|
• |
environmental data ranging from external weather and temperature, to road hazards and road signs. |
The Otonomo Vehicle Data Platform uses proprietary
technology to ingest, secure, cleanse, normalize, aggregate, and enrich vehicle data from 22 vehicle manufacturer (OEM) agreements, as
well as fleets, other data providers and enables the licensing of data to more than 100 service providers. It focuses on data structuring
and preparation, including consent management, transmission to marketplace, data cleaning, filtering, validating, consolidating, blurring,
normalizing and indexing, and also offers services to process, store, enrich and visualize data. We believe that the Otonomo Vehicle Data
Platform is the first neutral vehicle data platform that provides straightforward and secure data access and transforms data into actionable
insights for services such as preventative maintenance, EV management, emergency services, on-demand fueling, insurance and smart cities.
Privacy by design is at the core of the platform, which enables EU General Data Protection Regulation (GDPR) and other privacy-regulation-compliant
solutions using both personal and aggregate data.
A connected car may generate up to 25 gigabytes
of data per hour. As it is produced, most of this data leaves the car via in-vehicle cellular devices. The data is initially stored in
data centers or cloud platforms owned by OEMs, and in some cases by Tier-1 suppliers or the third parties which own the OBD II onboard
devices installed after vehicle purchase.
Due to the lack of consistent connected car
data formats or standards, connected car data must undergo additional processing before it can be useful for applications and services.
Our platform aggregates and normalizes data from multiple OEMs and other data providers and processes the data to make it usable and valuable
to data providers and data consumers.
Understanding the Data
We collect vehicle-specific and aggregated
data from vehicle data providers, such as OEMs, fleets TSPs and mobile devices. Personal or vehicle specific data refers to data that
is collected from a specific vehicle or group of vehicles and includes personally identifiable information (“PII”), such as
vehicle identification number (“VIN”). Aggregated data refers to data that is collected from multiple sources and compiled
into data summaries or summary reports or used in an aggregated and ammonized form to create analytics and insights relating to such data.
The Otonomo Vehicle Data Platform connects
to our data providers’ respective data centers via application programming interfaces (“APIs”), and provides data consumers
with application-ready, enriched datasets and insights. This eliminates the need for data consumers to invest the significant amount of
development work required to utilize connected vehicle data in applications and services. OEMs, other data providers and data consumers
use the Otonomo Vehicle Data Platform and marketplace to efficiently share and utilize vehicle data and offer drivers advanced in-car
services, while meeting security, privacy and data regulation requirements. We generate revenue for these data providers by the utilization
of the data by data consumers in various segments, primarily smart cities, transportation companies, fleet services, insurance companies,
financial institutions and dealerships.
Our customers use vehicle data depending on
their specific needs and purposes. The data can be shared in personalized or blurred form, and on an individual, aggregate, or fleet level.
Additionally, the data can be delivered in a near real-time or as historical data. Aggregate data is used for, among other things, traffic
flow optimization, mapping, infrastructure planning, road hazard identification, congestion management, preventative maintenance, R&D
optimization, location intelligence and media measurement. Vehicle specific data is used for, among other things, services delivering
roadside assistance, electric vehicle charging services, occupant safety, subscription-based fueling, usage-based insurance, remote diagnostics
and parking payments.
Key Trends in Connected Cars and Vehicle
Data
Since the introduction of the first embedded
telematics systems in the mid-1990s, OEMs have gradually added data systems and connectivity features to their vehicles and have offered
drivers a growing variety of data-driven products and services. Technological advancements in recent years have increased the volume and
quality of the data captured by vehicles. The value of this new data opened opportunities for OEMs to integrate more sensors and connectivity
features, resulting in expanded offerings to drivers and a more diverse portfolio of in-vehicle and remote data-driven services.
Vehicles are now able to generate, monitor
and share many types of data, including geolocation, performance and driver behavior. As OEMs continue to develop application-based tools
to monitor key maintenance statistics, uses for vehicle health data and operational functionality are expanding. While the use of advanced
biometric data is still in its infancy, new sensors in the cockpit can allow vehicles to monitor key attributes of their occupants, including
stress levels, heart rhythms, alcohol consumption levels and fatigue.
The growth of connectivity in vehicles has
increased the demand for data-driven products and services, and provides for ample data utilization opportunities, which expand with every
customer who integrates into the connected car ecosystem. Vehicles with greater connectivity levels also generate higher value per vehicle.
According to the McKinsey Center for Future Mobility, vehicle connectivity levels (as defined herein) are projected to reach 850 million
vehicles by 2030. The growing data availability leads to an increasing market size as well as to an increased importance of vehicle data
marketplaces that facilitate data exchange.
According to the McKinsey Center for Future
Mobility, vehicle connectivity can be classified into five levels based on the in-car experience of car riders:
|
1. |
General hardware
connectivity—driver tracks basic vehicle usage and monitors technical
status; |
|
2. |
Individual
connectivity—driver uses personal profile to access digital services
via external digital ecosystems and platforms; |
|
3. |
Preference-based
personalization—allows for personalized controls, individual infotainment
content, and targeted contextual advertising for all vehicle occupants; |
|
4. |
Multi-model
live dialogue—all occupants interact live with the vehicle and receive
proactive recommendations on services and functions; and |
|
5. |
Virtual chauffeur—all
occupants’ explicit and unstated needs are fulfilled by cognitive artificial intelligence that predicts and performs complex, unprogrammed
tasks. |
According to the McKinsey Center for Future
Mobility, by 2030, more than 10% of new vehicles sold globally are expected to include the most advanced connectivity level and approximately
95% are expected to include at least the basic level of general hardware connectivity. The greater the connectivity, the more seamless
a rider’s experience becomes, and the more opportunities for generating data-based revenue are created. User expectations will continue
to evolve in parallel with available technology and will incentivize OEMs and service providers to deliver higher-value, data-driven user
experiences.
Regulatory developments in recent years are
also expected to contribute to the expanding vehicle data ecosystem. By introducing new concepts that promote greater and more equal access
to OEM data, regulators have been creating a favorable environment for data utilization. Examples include the “extended vehicle”
concept which is being strengthened by the obligations imposed on OEMs under Regulation (EU) 2018/858 and the Massachusetts Right to Repair
Act extending to vehicle data. See “—Regulation.”
Vehicle data marketplaces are expected to
also benefit from autonomous vehicles (“AVs”), which, while still early in their development and adoption, are rapidly advancing.
Companies developing AVs, or autonomous driving systems, rely on highly customized, real-world, real-time and historical vehicle data
to develop and deploy autonomous driving systems. As AVs are increasingly adopted, OEMs and vehicle fleet operators will require extensive
and reliable data platforms to efficiently manage the data requirements of AVs and AV fleets, and to ensure their safe and efficient operation.
Advantages of vehicle data marketplaces:
Existing platforms for consuming vehicle data
are limited and inefficient. For example, on-board diagnostics (“OBD II”) aftermarket dongles, which are commonly used by
TSPs in order to perform fleet and vehicle tracking, only provide selected data points and no data streaming. OBD II onboard devices require
separate installation in every vehicle and their use may be further limited in the future due to regulatory changes. Furthermore, OBD
II onboard devices may be easily vandalized and removed. Smartphone data is used by many data consumers to monitor vehicle usage, but
the data it provides is limited and subject to manipulation and inaccuracy.
Vehicle data marketplaces:
|
• |
allow data providers and consumers to efficiently outsource consent management, data processing and data structuring, allowing them
to benefit from vehicle data while remaining focused on their core business; |
|
• |
present significant cost reductions for data providers that only need to integrate with one partner instead of multiple data consumers;
|
|
• |
present significant cost reductions for data consumers by allowing them to work with one integration partner. This provides data
consumers with data in a structured and usable format, instead of dealing with the challenges of contracting multiple OEMs and managing
multiple stakeholders and formats; |
|
• |
facilitate use cases of aggregate data that require certain coverage levels; |
|
• |
eliminate reliance on OBD II aftermarket devices in favor of data marketplaces that provide the same data and other data points continuously
and in a more user-friendly format; and |
|
• |
ensure data quality and accuracy for data consumers by replacing smartphone data with more sanitized data, thereby lowering risk
of fraud and inaccuracy. |
Otonomo API and Delivery Methods
We provide a rich, flexible API to serve the
unique needs of diverse applications and services. Different data use cases may require different data delivery types. For example, an
emergency car service may require real-time data when an accident takes place. On the other hand, usage-based insurance may pull a car’s
odometer once a week. Lastly, a data analytics company might opt for historical car data to understand traffic trends. We provide different
data delivery methods to cater to these different use case requirements:
|
• |
Historical
data reports: CSV reports contain historical, aggregated vehicle data. Historical
data reports are triggered by a RESTful API call with parameters that define a region (e.g., city), and time span for the report. Report
generation may take minutes or hours to complete. Several historical reports exist for different data types (e.g., vehicle data points
and vehicle trips). |
|
• |
Vehicle status:
A near-real time RESTful API returns the last known status of a specific vehicle. Vehicle data information is used by personal driver
applications, such as fueling and parking. Additionally, we provide bulk vehicle status for receiving the last known status of one or
more vehicles. This interface can be particularly useful for fleets. |
|
• |
Streaming:
This is a “push” mechanism that continuously streams real-time data to data consumers. Streaming uses HTTP POST requests and
can send both aggregate and personal vehicle data. A stream is created upon subscribing. Stream subscription defines one or more data
filters such as desired vehicle area (i.e., city), and maximal point latency. Streaming is optimal for applications that require real-time,
rich vehicle data. |
|
• |
Events:
An event is defined by a logical rule on a vehicle data point. When a rule is evaluated to be true, an event message is triggered and
sent to the data consumer. For example, an event message would be sent to the data consumer through a fueling application whenever a vehicle
travels in a certain radius from a gas station while below the 10% fuel level. Events receive the data they need in real-time, enabling
applications to save processing power and network bandwidth. Events can be used for both personal and aggregated data. This capability
is currently under development. |
Otonomo Dynamic Blurring Engine
The Otonomo Dynamic Blurring Engine is a SaaS
capability that protects personal data by using sophisticated blurring techniques to blur personal data while preserving the data’s
value for a diverse range of mobility and other applications and services. These services may include assisting smart cities with traffic
management and HD mapping, road safety, parking and media research.
Otonomo Consent Management Hub
The Otonomo Consent Management Hub is an integral
element of the Otonomo Vehicle Data Platform and provides an efficient way for connected car drivers to take control over the sharing
of their vehicle data by providing a networked architecture to simplify setup and integration and deliver high scalability for automotive
OEMs and service providers.
As the transportation ecosystem advances its
use of vehicle data, the information flows around driver consent can become complex. For example, in-vehicle delivery from retailers may
require drivers to provide consent to both the retailer and a third-party courier service. With the Otonomo Consent Management Hub, each
party has a single integration point through which they can validate driver consent and deliver the approved personal data to other parties
in the ecosystem. OEMs also do not need to directly support integration with multiple parties, including companies such as courier services
with which they may not have a contractual relationship. Service providers can innovate faster by eliminating point-to-point integrations
with multiple OEMs. Any new OEM or service provider integration will open new opportunities to numerous organizations in the ecosystem.
The Otonomo Consent Management Hub allows
drivers to grant or revoke access for specific services at any time and provides drivers full transparency as to what personal vehicle
data will be shared with specific services. The Otonomo Consent Management Hub differentiates the Otonomo Vehicle Data Platform by enabling
driver-specific consent rather than per-vehicle consent. Each vehicle (identified by its VIN) can have multiple drivers, and each driver
can use multiple VINs.
Vehicle Management Application
Our Vehicle Management application is designed
for fleets to easily and efficiently manage the data of their fleet vehicles. The vehicle management app streamlines data operations and
can be used in conjunction with, or independently from, existing fleet management systems.
Otonomo Self-Serve Platform
The Otonomo Self-Serve Platform offers many
features, such as easy-to-use geofencing, filtering, configurable APIs and data report generation capabilities, giving developers, analysts
and product leaders online access to real-time and historical, aggregated car-generated data and tailors this data to their needs.
External Third-Party Connectors
We are working with leading third party platforms
to enable out-of-the-box integration to vehicle data. Such connectors will enable service providers to integrate vehicle data into their
existing CRM and business workflows in order to provide state of the art service to their customers.
The Otonomo Mobility Intelligence
Platform
Our Mobility Intelligence Platform, which
we introduced as an Otonomo offering following the closing of the Neura Transaction, empowers organizations to drive strategic, data-driven
decisions by transforming vast amounts of anonymized data and activity signals into actionable, impactful and valuable insights. Otonomo
delivers advanced visibility into mobility needs and provides solutions for effective urban planning and operations of mobility services.
These tools enable transportation planners, Mobility-as-a-Service (“MaaS”) providers and EV services providers to design and
operate more sustainable and livable cities. The Otonomo Mobility Intelligence Platform broadens and diversifies our data assets and enriches
our mobility insights by adding to our core automotive OEM data sets new data-layers, including but not limited to mobile devices mobility
data, demographics, EV charging stations, micro mobility and public transportation. Following the completion of the Neura Acquisition,
we launched three new solutions. These solutions are focused on electric vehicle charging point operators, MaaS providers and transportation
planners. In addition, during 2021 our mobility models and workflows were adopted by healthcare providers in Israel to streamline the
response to the changing threats of COVID-19.
Advantages of the mobility intelligence platform:
|
• |
Planning: Our mobility intelligence platform is based on up-to-date aggregated data and allows for the planning of market expansion,
optimal deployment of EV charging stations, effective resource deployment of MaaS and micro mobility supply, and data driven planning
of traditional transportation networks. |
|
• |
Operation: Our mobility intelligence platform can be used for dynamic demand driven fleet management and multimodal optimization
and is adaptive to actual riders’ needs. |
|
• |
Market Intelligence: Our mobility intelligence platform provides visibility into competitive operators, rental agencies, car dealerships,
and mobility alternatives and allows our clients to see beyond the scope of a limited first-party data set. |
Our Market Opportunity
|
• |
Growing ecosystem
and data pool. There are dozens of potential customer groups and thousands
of potential data consumers for vehicle data utilization. These include product-related players, such as OEMs and Tier 1 suppliers, vehicle-related
service providers, such as fleet operators, and other organizations in the extended ecosystem, such as smart cities, insurance companies
and telecom operators. Overall, we believe many customer groups will join the ecosystem and expand their usage of external vehicle data.
A growing number of service providers actively use external vehicle data, and we believe that the number of service providers using such
data is likely to continue to increase moving forward. As 4G/5G mobile network ubiquity increases, the volume of data and parameters being
sent from vehicles to OEM clouds is growing exponentially. According to the McKinsey Center for Future Mobility, the total value pool
from car generated data is projected to increase to $120 billion to $160 billion by 2025 and to $250 billion to $400 billion by 2030.
|
|
• |
Unique technological
needs and high onboarding costs for data providers. The increasing volume
and scope of vehicle data requires data providers to integrate complex data processing, cleaning, accounting, consent, multiple APIs and
data structuring technologies. OEMs often lack the capabilities to implement these technologies and do not have the desire to develop
them internally due to the substantial investments required for building and maintaining the data infrastructure. Tapping into the vast
potential of data utilization also requires data providers to individually contract and integrate with multiple data consumers, which
results in high marginal costs per each new data consumer acquired. Onboarding each new consumer also requires the involvement of multiple
organizational functions, such as IT, legal and procurement. The onboarding process is often too expensive to justify the investment for
data providers, especially when data consumers are small or medium-sized businesses. Without significant reduction of onboarding costs,
the ability of data providers to efficiently scale their utilization efforts is limited. |
|
• |
Technological
and cost constraints on data consumers. Lack of consistent formats or data
standards across OEMs, or even across different models manufactured by the same OEM, requires data consumers to work with multiple stakeholders
in different data formats and on different APIs. In addition, contracting with multiple OEMs involves conducting lengthy and costly negotiation
and integration efforts by legal, privacy and technology resources with multiple parties. For some use cases, data consumers require certain
levels of vehicle coverage in a specific area (e.g., smart city applications may need at least 2% coverage) and contracting OEMs directly
would not be sufficient for their needs. |
|
• |
Regulatory-driven
opportunities. Recent developments in regulation of vehicle data and connected
cars, such as Regulation (EU) 2018/858 requiring OEMs to share connected car data with third parties, as well as emerging industry standards
(such as NEVADA Share & Secure, which are intended to enable the secure transmission of data generated in the vehicle and make it
usable for public authorities and industry), promote open access to vehicle data and neutrality, while also challenging OEMs by requiring
them to supply the scale and ability to technically and legally align with the hundreds of service providers seeking access to vehicle
data. With the removal of barriers to vehicle data accessibility, more organizations will be able to access and utilize vehicle data,
and more data-driven services are expected to become available. |
|
• |
Compliance
challenges. Data providers collecting, processing or sharing vehicle data
must ensure that their collection, processing and use of vehicle data is compliant with personal data protection regulations, such as
GDPR and CCPA, which often require prior consent. While free, informed and specific consents may be required from every vehicle user whose
personal data is collected, obtaining compliant consents from drivers and passengers not related to the vehicle’s legal owner involves
practical concerns for OEMs. The need for explicit consent for sharing data with separate service providers requires OEMs to provide advanced
consent flows and consent management capabilities that can be seamlessly integrated. It has proven to be challenging for the OEMs to manage
data compliance on very large scale with no consent management standards available. |
Competitive Advantages
We believe that the following strengths differentiate
us and will enable us to successfully compete and maintain its leadership position in its target markets. Unlike other market players,
we are unique in our ability to support all data domains: B2B, B2B2C, and aggregate, as well as having the required supporting technologies
such as the Dynamic Blurring Engine and Consent Management Hub.
|
• |
Technologies.
We possess strong, market-unique technology specifically tuned to vehicle
data needs, which it has been providing to multiple data providers and data consumers since 2015. Our solution is intended to cover all
of the vehicle data needs of data providers and data consumers. While some market players focus only on aggregate data or personal data,
we offer services for both. We also provide data consumers with a larger variety of data
points and offer more personalized data sets compared to other market players. In addition to its marketplace offerings, we offer unique
SaaS features not found elsewhere, such as the Otonomo Consent Management Hub and the Otonomo Dynamic Blurring Engine. |
|
• |
Large fleet
size and strong relationships with OEMs and other data providers. Our early
and broad engagement with OEMs and other data providers has resulted in strong relationships with OEMs and other data providers that differentiate
it from its competitors. We are a market leader among vehicle data companies with the market’s largest vehicle installed base.
|
|
• |
Neutrality.
We are a pure marketplace player. Unlike others in the market, we do not offer services that compete with our customers. In addition,
while some market players count OEMs and Tier-1 suppliers among their largest investors, our investor base is comprised of both financial
and strategic investors, and our board of directors’ members are not affiliated with any industry players. We expect that this neutrality
will continue to make us more attractive to OEMs and other automotive businesses compared to other market players, enabling us to cater
to a broader range of customer segments. |
|
• |
Global coverage
and large ecosystem. While some of the other market players are focused
on specific regions, we offer global coverage and a large ecosystem of data providers and consumers. Our global ecosystem makes our platform
attractive to data providers and consumers. It enables them to address a large share of the market without the need to connect with multiple
other partners, which can provide for faster scaling and reduce connection costs. |
Growth Strategies
|
• |
Ramp up sales
and marketing efforts. To accelerate its growth, we intend to engage new
customer segments, expand existing customer segments and continue to leverage outbound sales and lead generation activities. We also intend
to bolster its salesforce to target existing markets, including expanding its activity in Asia-Pacific, penetrating new regions such as
Latin America, and expanding its segment-dedicated salesforce. |
|
• |
Deepen OEM
relationships. We intend to expand existing OEM relationships with the onboarding
of new vehicles, makes and models and entering new geographies, which is expected to help us to deepen our existing relationships with
current OEMs. |
|
• |
Add new types
of data providers. We will continue to add data providers to further differentiate
our platform from others in the market, including through the diversification and deepening of data sources. For example, we may expand
data attributes gathered from light construction and commercial vehicles alongside micro-mobility data. |
|
• |
Add new capabilities:
We will continue to add new capabilities to our mobility intelligence platform through the addition of vehicle data to the our intelligence
products. |
|
• |
Expand licensing
offerings. We will continue to develop additional technology products for
licensing to both OEMs and service providers in order to diversify its revenue through a mix of marketplace services and software licensing.
|
|
• |
Accelerate
end-market demand. We will make efforts to expand our customer base and
increase accessibility to data utilization by educating customers on potential benefits, expanding self-serve offerings and diversifying
the utilization models. |
|
• |
Expand services
throughout data value chain. We will expand our offering by providing additional
services along the data value chain, such as data storage, enrichment and visualization. These additional services will allow us to address
new use cases and increase the value of our data pool. |
|
• |
Capitalize
on regulatory changes. We believe that our existing infrastructure positions
us well to capitalize on regulatory changes promoting data privacy, security and access and benefit from the growing scope and complexity
of data privacy and cybersecurity regulations. |
Marketing
We believe we have built a strong brand and
are recognized as an industry leader in mobility services. We believe our reputation as a trustworthy and capable data partner is a primary
reason that many leading OEMs and data customers have chosen us as their mobility data partner.
Our marketing is mainly focused on inbound
activities and supporting the outbound efforts of the sales team. The marketing team uses advanced marketing techniques and digital technologies,
as well as the creation of original and engaging content to keep the brand top of mind with prospects, customers, analysts, and the media.
These tools include marketing automation, remarketing and a selection of social media tools.
Activities vary from development of educational
and promotional material in the form of blogs, webinars, whitepapers, ebooks, datasheets and sales support tools. These materials educate,
engage and accompany prospects as they move along the purchasing funnel converting them into customers and beyond.
We leverage a variety of channels to reach
prospects which include organic and paid social media activity, joint events, industry conferences, webinars and media and analyst relations.
Sales
Our sales efforts are focused on delivering
solutions for urban planning, MaaS providers, EV infrastructure providers and fleet operators, the acquisition of data to increase our
data pool, and the licensing of data to data consumers.
To acquire car-generated data and mobility
data from mobile devices, we partner directly with OEMs and other data providers through our dedicated sales engagement organization,
which focus on deepening our existing relationships and increasing our data pool and geographic coverage. We pay for acquired data through
a combination of fixed fees and revenue share arrangements with data providers.
Sales to customers are executed primarily
through an organic sales organization that sells directly to data consumers, indirectly through our partners, serving as sales channels,
which include consulting, technology, professional and outsourcing services, and through strategic partnerships.
All sales channels use the Otonomo Self-Serve
Platform to easily scale the sales process, improve engagement, and better understand the consumer.
Global sales efforts focus on the following
customer segments and uses:
|
• |
Smart Cities:
reduction of congestion and pollution through traffic flow and route management; |
|
• |
Transportation:
incorporation of car data into active transportation management tools that help optimize their operation; |
|
• |
Fleet services:
improved fleet management driven by GPS vehicle tracking and remote diagnostics; |
|
• |
Insurance:
better policyholder experience through behavioral analysis and accident
reconstruction; |
|
• |
Financial:
enhance risk management possibilities and offering of new financial services; and |
|
• |
Dealerships:
predictive vehicle maintenance and vehicle health indicators. |
|
• |
EV: incorporation
of mobility data that helps optimize operations including where to locate EV charging stations to maximize return on investment and service
accessibility. |
Custom plans are offered through our direct
sales organization and our marketing partners. The pricing and data models of these plans are customized to the customers’ needs.
Custom plans include full data access, near real-time streaming and a growing variety of SaaS offerings.
The Otonomo data marketplace Self-Serve Platform
provides access to selected data sets and is currently available with a 30-day free trial. Once registered, Self-Serve Platform users
pay for the data they consume by a pay-per-use plan. Via the platform, the users have access to comprehensive documentation and customer
support.
Technology
The Otonomo Vehicle Data Platform and Mobility
Platform each use state of the art cloud-native microservices architecture, as well as a long list of Big Data technologies to ingest,
process and expose the billions of data points per day that we receive. These include streaming technologies like Apache Flink, as well
as Big Data batch-processing based on Apache Spark. Security is a first-class citizen in our technology, from the design and development
processes through its production.
Research and Development
We have invested a significant amount of time
and expense into research and development in order to develop the Otonomo Vehicle Data Platform, strengthen its data reshaping capabilities,
scale the data pipeline and facilitate data access by its ecosystem. Our research and development activities are largely conducted at
our headquarters in Herzliya, Israel. As of December 31, 2021, Otonomo had approximately 57 full-time or equivalent employees engaged
in R&D activities.2 Our ability to compete in our
industry depends in part on our ability to successfully achieve continual innovation in its technology and products through R&D activities.
Intellectual Property
Our business depends, in part, on our ability
to develop and maintain the proprietary aspects of our core technology. Our policy is to obtain appropriate proprietary rights protection
for any potentially significant new technology we develop. We currently hold 13 registered patents (of which 7 are U.S. patents) and have
29 pending patent applications (of which 27 are pending U.S. patent applications) covering a range of key aspects of our proprietary technology,
including, among other things, methods for data extraction, normalization, aggregation and ingestion, as well as privacy and consent management
technology.
In addition to patent laws, we rely on copyright
and trade secret laws to protect our proprietary rights. We attempt to protect our trade secrets and other proprietary information through
agreements with OEMs, customers, vendors, employees, consultants and through other similar measures.
Market Position
The market for vehicle data marketplaces is
emerging and several players are in the early and growth stages. Our closest competitors focus on data provisioning, services to manage
and structure data and consent management.
Outlying players include service providers
and personal use case companies. These players focus on enabling services via APIs and connecting service providers with customers’
PII. They may also provide industry-specific data and service providers for location-based services, while others focus on fleet management,
and repair-and maintenance data services.
Additionally, tech companies, such as Google
and Alibaba, and vehicle operating system providers, such as Huawei and Baidu, may enter the vehicle data market.
Companies providing cloud computing platforms
and APIs, such as Amazon Web Services and Microsoft, may also enter the vehicle data exchange or utilization space.
We currently face challenges from a range
of companies seeking to establish and develop relationships with OEMs and other data providers. Some players are working to advance technology,
performance and innovation in their development of new solutions.
Within the vehicle data marketplace segment,
traction is based significantly on scale, performance and technology. We believe that our deep relationships with OEMs and other data
providers, our mature, proprietary technology and global coverage well position us to partner with additional OEMs, and data providers
looking for a strong data partner with low operational risk.
We believe that it may take small, emerging
companies a substantial period of time and many resources to gain the recognition and trust of OEMs and other data providers. We believe
that our early and broad engagement with OEMs and fleets, resulting in strong relationships and potentially the largest installed base
in the market, differentiates us from our competitors.
We expect that our technology and continual
innovation will support our position as a leader in the vehicle data market based on the previous mentioned market differentiators. While
other market players will continue to emerge and recede, we believe our leadership position will maintain its stronghold.
Government Regulation
Vehicle data companies are subject to emerging
regulatory federal, state, national and international frameworks that are in a rapid state of change.
To operate its platform and provide services
to its customers, we receive, process and share vehicle-generated data. This data includes PII and aggregate data from our data providers,
such as OEMs, fleet operators, TSPs and mobile devices. PII can only be collected, processed and shared in compliance with legal and technical
requirements such as GDPR, the EU Directive on Privacy and Electronic Communications, Regulation (EU) 2018/858 requiring OEMs to share
connected car data with third parties or California’s CCPA as well as industry standards (as such NEVADA Share & Secure) promoting
open access to data and neutrality. Aggregate data is generally subject to different privacy obligations or is exempt from personal data
protection laws. We do not receive, process or share vehicle generated PII without receiving sufficient assurances from our data providers
that the subject of the information has been provided with clear and appropriate notice and explicitly consented to provide such information.
We view privacy regulation as generally favorable to its business as the Otonomo Vehicle Data Platform allows data providers and customers
to utilize personal and aggregate data while complying with privacy regulations through the Otonomo Consent Management Hub and the Otonomo
Dynamic Blurring Engine.
Regulation requiring greater and more equal
access to vehicle data requires data providers to share more data with more data consumers thereby reducing costs for data consumers and
enabling more use cases and opens new end markets. We believe that breaking down barriers to data accessibility will make more data-driven
services available, grow data utilization opportunities for our partners and customers and expand the connected car ecosystem.
Growing car connectivity and digitization,
the acceleration of autonomous driving innovation and the expansion of digital mobility services has contributed to the continued rise
of the importance of cybersecurity in the automotive industry. Regulators have started adopting mandatory minimum standards for vehicle
software cybersecurity. For example, in December 2019 California’s Department of Motor Vehicles published regulations requiring
light-duty autonomous delivery vehicles to be certified as meeting current industry standards to help defend against, detect and respond
to cyber-attacks, unauthorized intrusions or false vehicle control commands.
The largest international vehicle regulatory
system, the World Forum for the Harmonization of Vehicle Regulations (“WP.29”),
which is part of the United Nations Economic Commission for Europe (“UNECE”),
published in June 2020 is the first WP.29 regulation that outlines cybersecurity requirements for OEMs and the connected and autonomous
vehicles that they manufacture. The WP.29 automotive cybersecurity regulation also outlines processes that OEMs in over 60 countries must
have within their organizations and vehicles to achieve vehicle-type approval with regard to cybersecurity in their vehicles.
The vehicle data and connected car regulatory
landscape is still evolving rapidly. We believe that national and international legal frameworks around vehicle data and connected cars
will continue to develop and change to address technological, consumer and societal developments. We may become subject to additional
regulatory schemes and requirements, whether applicable to it directly as a vehicle data marketplace, or indirectly, as a result of legal
requirements imposed on OEMs and other data providers.
As a global technology company, we are also
subject to trade, export controls, anti-bribery and sourcing regulations in various jurisdictions. Our operations are also subject to
various federal, state and foreign laws and regulations governing the employment and occupational health and safety of our employees and
wage regulations.
Seasonality
We do not experience material seasonality
in our operations.
Employees
As of December 31, 2021, we had 128 full-time
(or full-time equivalent) employees based primarily in Israel, including 43 employees engaged in research and development, 14 employees
in product development and management, 46 employees in sales and marketing and 25 employees in general management, administration and
finance. We also have 9 employees based in the United States and 3 employee based in Europe. None of our employees are represented by
a labor union, and we consider our relations with our employees to be good. To date, we have not experienced any work stoppages.
Facilities
Our headquarters is located in Herzliya, Israel,
where we lease an office with approximately 20,450 square feet. Our headquarters is subject to a lease agreement that expires on December
31, 2022 and may be renewed on a quarterly basis for two years after. This facility contains engineering, product, commercial, marketing,
sales and administrative functions.
Legal Proceedings
We may be subject from time to time to various
proceedings, lawsuits, disputes or claims in the ordinary course of business. We investigate these claims as they arise. Although claims
are inherently unpredictable, we are currently not aware of any matters that, if determined adversely to the Company, would individually
or taken together, have a material adverse effect on our business, financial position, results of operations, or cash flow.
C. Organizational
structure
Each of our subsidiaries are wholly owned
by us. Our subsidiaries are listed below.
Name |
Jurisdiction of Organization |
Otonomo Inc. |
Delaware (USA) |
Otonomo GmbH |
Germany |
Otonomo Merger US Inc. |
Delaware (USA) |
Neura, Inc. |
Delaware (USA) |
Neura Labs Ltd. |
Israel |
D. Property,
plants and equipment
See “Item 4. Information on the Company—B.
Business Overview—Facilities.” We believe that our facilities are adequate to meet our needs for the immediate future and
that suitable additional space will be procured to accommodate any expansion of our operations as needed.
Item
4A. |
Unresolved Staff Comments |
None.
Item 5. |
Operating and Financial Review and Prospects |
You should read the following
discussion and analysis of our financial condition and results of operations together with the “Selected Financial Data” and
the historical audited annual consolidated financial statements and the related notes included elsewhere in this Annual Report. Some of
the information contained in this discussion and analysis or set forth elsewhere in this Annual Report, including information with respect
to our plans and strategy for our business and related financing, includes forward‑looking statements that involve risks and uncertainties.
As a result of many factors, including those factors set forth in the section entitled Item 3.D. “Risk Factors” of this Annual
Report, our actual results could differ materially from the results described in or implied by the forward‑looking statements contained
in the following discussion and analysis.
Overview
We are a leading one-stop shop for mobility
data. Otonomo fuels a data ecosystem of OEMs, fleets and more than 100 service providers spanning the transportation, mobility and automotive
industries. Our platform securely ingests more than 4 billion data points per day globally from over 50 million vehicles licensed on the
platform and massive amounts of mobility demand data from multimodal sources, then reshapes and enriches it to accelerate time to market
for new services that improve the mobility and transportation experience. We provide deeper visibility and actionable insights to empower
strategic data-driven decisions – taking the guesswork out of mobility and transportation planning, deployment and operations.
As part of our proprietary data platform,
we have developed a robust suite of SaaS offerings that provide both OEMs and service providers with additional capabilities, and that
incorporate vertically specific applications to meet different privacy, regulation, storage, visualization and data insight needs.
Privacy by design and neutrality are at the
core of our platform, which enables compliance with regulations such as GDPR, CCPA, and other vehicle specific regulations, such as the
EU requirement/directive that OEMs share connected car data with third parties or the Massachusetts’ Right to Repair Act allowing
access to vehicle data for maintenance and repair purposes.
We generate the majority of our revenue from
fees charged to customers based on data points consumed through its platform. We also generate revenue through services relating to proprietary
features through our platform.
Our customers typically enter into contractual
arrangements with terms up to three-years. We charge these customers based on data points consumed or per VIN per month. Some customers,
especially smaller organizations, consume data points on our platform through the self-serve platform on an on-demand basis for which
we charge based on data points or trips consumed.
Our go-to-market strategy is focused on expanding
its access to data through partnering with OEMs, fleets and other data providers, acquiring new customers and driving continued use of
our platform for existing customers.
We pursue strategic partnerships with OEMs,
fleets and other data providers through a dedicated team segmented by geographical regions. We focus our selling efforts on organizations
of various sizes, within specific customer segments, and licenses access to our platform through a direct sales force which is segmented
by geographical regions. Our platform is used globally by organizations of all sizes across a broad range of industries. In 2021, we had
55 total customers, an increase from 22 total customers in 2020.
Consummation of the Business
Combination
On January 31, 2021, Otonomo entered into
the Business Combination Agreement with SWAG and Merger Sub. On August 13, 2021, upon consummation of the Business Combination and the
other transactions contemplated by the Business Combination Agreement, Merger Sub merged with and into SWAG, with SWAG surviving the merger
as a wholly owned subsidiary of Otonomo.
The Business Combination was accounted for
as a recapitalization as pre-combination Otonomo was determined to be the accounting acquirer under Financial Accounting Standards Board
(FASB)’s Accounting Standards Codification Topic 805, Business Combinations (ASC 805).
Concurrently with the execution of the Business
Combination Agreement, Otonomo and the PIPE Investors entered into the Subscription Agreements. On the Closing Date, the PIPE Investors
purchased an aggregate of 14,250,000 PIPE Shares at a price per share of $10.00 for gross proceeds to Otonomo of $142,500,000.
In addition, concurrently with the execution
of the Business Combination Agreement, Otonomo, the “Selling Shareholders and the Secondary PIPE Investors entered into the Share
Purchase Agreement. On the Closing Date, providing the Secondary PIPE Investors purchased an aggregate of 3,000,000 Secondary PIPE Shares
from the Selling Shareholders at a price per share of $10.00 for gross proceeds to the Selling Shareholders of $30,000,000.
Neura Acquisition
On October 4, 2021, pursuant to the Neura
Merger Agreement, Otonomo acquired Neura, a leader in Artificial Intelligence (AI)-powered mobility intelligence. Otonomo acquired 100%
of Neura’s outstanding equity interests for transaction consideration of $46.8 million, including the issuance of the Neura Shares.
Otonomo expects its newly expanded mobility intelligence platform to leverage Neura’s advanced analytics powered by patented AI
and Machine Learning technologies and diverse multi-layered data.
The Floow Acquisition
On February 26, 2022, Otonomo entered into
the Floow SPA to acquire The Floow in a cash and stock deal valued at approximately $69 million, including a performance based earnout
of up to $37.5 million. Under the definitive agreement, the aggregate cash and stock consideration to be paid and issued upon closing
is valued at $31.5 million based on a share price of $2.75. Otonomo may issue additional cash and stock of up to $37.5 million dependent
upon achievement of certain business performance objectives. The acquisition is subject to approval by U.K. regulators and is expected
to close during the second quarter of 2022.
Otonomo believes the combination of vehicle
and mobile data from Otonomo and The Floow will be crucial to enabling innovative, usage-based and behavioral-based insurance products
and to move from “detect and repair” to “predict and prevent” models to create safer, greener and smarter driving
experiences for policy holders. Over the last decade, The Floow has built a portfolio of connected insurance clients, alongside strategic
partnerships with Munich Re and TransUnion. The Floow's data refinery platform enables insurance carriers to introduce “connectivity”
to their products and differentiate their offerings through a more precise understanding of risk in the context of personalized products
and services, improved road safety through driver coaching and timely, accurate roadside assistance.
Key Factors Affecting Our Operating Results
Expanding Our Data Supplier
Base
We currently have 22 OEM agreements. In addition
to data provided by these OEMs we receive data from fleet operators, TSPs and mobile devices. We believe that there is an opportunity
to expand its data supplier base by entering into partnership relationships with additional OEMs, fleet operators and TSPs and to expand
its existing OEM relationships with new series models and geographies. Furthermore, we see an opportunity to add new types of data suppliers
(e.g., light construction vehicles) to further differentiate its platform and drive additional data consumption by its customers.
Adoption of Our Platform
Our future success depends in a large part
on the market adoption of its platform. While we see growing demand for our platform, particularly from large enterprises, seeking easy
access to rich, secure and compliant vehicle data on which to base value-added services we wish to develop and market, to our customers.
While this makes it difficult to predict customer adoption rates and future demand, we believe that the benefits of our platform put us
in a strong position to capture the significant market opportunity ahead.
Expanding Within Our Existing
Customer Base
Our diverse base of customers represents a
significant opportunity for further consumption of the data within its platform. While we have seen a rapid increase in the number of
our customers, We believe that there is a substantial opportunity to expand the usage of our platform within our existing customers. We
plan to continue investing in our direct sales force to encourage increased data consumption and adoption of new use cases among our existing
customers.
Once deployed, our customers often expand
their use of our platform more broadly within the enterprise and across their ecosystem of customers and partners as they identify new
use cases and realize the benefits of our platform.
In any given period, there is a risk that
customer consumption of our platform will be lower than we expect, which may cause fluctuations in our revenue and results of operations.
Our ability to increase usage of our platform by existing customers, and, in particular, by large enterprise customers, will depend on
a number of factors, including our customers’ satisfaction with our platform, competition, pricing, availability and quality of
data, overall changes in our customers’ spending levels and the effectiveness of our efforts to help our customers realize the benefits
of our platform.
Acquiring New Customers
We believe there is a substantial opportunity
to further grow our customer base by continuing to make significant investments in sales, marketing and brand awareness. Our ability to
attract new customers will depend on a number of factors, including our success in recruiting and scaling our sales and marketing organization
and competitive dynamics in our target markets. We intend to expand our direct sales force, with a focus on increasing sales in targeted
geographies and customer segments. We may not achieve anticipated revenue growth from expanding its sales force to focus on large enterprises
if we are unable to hire, develop, integrate, and retain talented and effective sales personnel; if our new and existing sales personnel
are unable to achieve desired productivity levels in a reasonable period of time; or if our sales and marketing programs are not effective.
Investing in Growth and
Scaling our Business
We are focused on our long-term revenue potential.
We believe that our market opportunity is large, and we will continue to invest significantly in scaling across all organizational functions
in order to grow our operations both domestically and internationally. We have a history of introducing successful new features and capabilities
on our platform, and we intend to continue to invest heavily to grow our business to take advantage of our expansive market opportunity
rather than optimize for profitability or cash flow in the near future.
Key Business Metric
We monitor the key business metric set forth
below to help us evaluate our business and growth trends, establish budgets, measure the effectiveness of our sales and marketing efforts,
and assess operational efficiencies. The calculation of the key metric discussed below may differ from other similarly titled metrics
used by other companies, securities analysts or investors.
Number of OEM Data Agreements
We will continue to monitor the number of
direct and indirect agreements with OEM entities for different sets of data and SaaS. The number of agreements with OEMs will directly
impact the results of operations, including revenues and gross margins for the foreseeable future.
Impact of COVID-19
The COVID-19 pandemic began causing general
business disruption worldwide in January 2020. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business,
results of operations, cash flows and financial condition will depend on future developments that are highly uncertain and cannot be accurately
predicted. We have experienced, and may continue to experience, a modest adverse impact on certain parts of our business following the
implementation of shelter-in-place orders to mitigate the outbreak of COVID-19, including a lengthening of the sales cycle for some prospective
customers and delays in the delivery of professional services and trainings to our customers. We have also experienced, and may continue
to experience, a modest positive impact on other aspects of our business, including an increase in consumption of our platform by existing
customers.
Moreover, we have seen slower growth in certain
operating expenses due to reduced business travel, deferred hiring for some positions and the virtualization or cancellation of customer
and employee events. While a reduction in operating expenses may have an immediate positive impact on our results of operations, we do
not yet have visibility into the full impact this will have on our business. We cannot predict how long it will continue to experience
these impacts as shelter-in-place orders and other related measures are expected to change over time. Our results of operations, cash
flows, and financial condition have not been adversely impacted to date. However, as certain of our customers or partners experience downturns
or uncertainty in their own business operations or revenue resulting from the spread of COVID-19, they may continue to decrease or delay
their spending, request pricing discounts, or seek renegotiations of their contracts, any of which may result in decreased revenue and
cash receipts for us. In addition, we may experience customer losses, including due to bankruptcy or our customers ceasing operations,
which may result in an inability to collect accounts receivable from these customers. In addition, in response to the spread of COVID-19,
we have required substantially all of our employees to work remotely to minimize the risk of the virus to our employees and the communities
in which we operate. We may take further actions as may be required by government authorities or that we determine are in the best interests
of our employees, customers, and business partners.
The global impact of COVID-19 continues to
rapidly evolve, and we will continue to monitor the situation and the effects on our business and operations closely. We do not yet know
the full extent of potential impacts on our business or operations or on the global economy as a whole, particularly if the COVID-19 pandemic
continues and persists for an extended period of time. Given the uncertainty, we cannot reasonably estimate the impact on our future results
of operations, cash flows, or financial condition. For additional details, see the section titled “Risk Factors.”
Components of Results of Operations
Revenues
We derive our revenues from subscription revenues
to our vehicle data platform, which are comprised of subscription fees from customers accessing our enterprise cloud computing services
(“SaaS subscriptions”). We also generate revenues from the use of our artificial Intelligence (AI) platform that empowers
organizations by transforming behavioral data into actionable insights. (“MI services”)
We elected to adopt Accounting Standards Codification
(“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”), effective as of January 1, 2018, utilizing
the full retrospective method of adoption. Accordingly, the consolidated financial statements included elsewhere in this Annual Report
are presented under ASC 606. Under ASC 606, we determine revenue recognition through the following five- step framework:
|
• |
identification of the contract, or contracts, with a customer; |
|
• |
identification of the performance obligations in the contract; |
|
• |
determination of the transaction price; |
|
• |
allocation of the transaction price to the performance obligations in the contract; and |
|
• |
recognition of revenue when, or as, we satisfy a performance obligation. |
Our SaaS subscriptions revenues consist primarily
of fees to provide our customers access to our cloud-based platform, which includes routine customer support. Subscription service contracts
do not provide customers with the right to take possession of the software, are cancelable, and do not contain general rights of return.
Generally, subscription revenues are recognized ratably over the contractual term of the arrangement, beginning on the date that the service
is made available to the customer.
Subscription contracts typically have a term
of up to three years and are priced on fixed-fee or a pay per use basis. For fixed-fee basis contracts, invoicing occurring in annual,
quarterly or monthly installments at the beginning of each year of the subscription period or at the end of each quarter or month, respectively.
MI services typically have a term of up to
one year and are priced on a fixed-fee basis. For fixed-fee contracts, invoicing typically occurs when the service is delivered. Performance
obligations promised in a contract are identified based on the services that will be transferred to the customer that are both capable
of being distinct, whereby the customer can benefit from the services either on their own or together with other resources that are readily
available from third parties or from us, and are distinct in the context of the contract, whereby the transfer of the services is separately
identifiable from other promises in the contract.
We provide access to our cloud-hosted software,
without providing the customer with the right to take possession of our software, which we consider to be a single performance obligation.
If the contract contains a single performance
obligation, the entire transaction price is allocated to the single performance obligation. For contracts that contain multiple performance
obligations, we allocate the transaction price for each contract to each performance obligation based on the relative standalone selling
price for each performance obligation. In instances where performance obligations do not have observable standalone sales, we utilize
available information that may include market conditions, pricing strategies, the economic life of the software, and other observable
inputs or uses the expected cost-plus margin approach to estimate the price we would charge if the products and services were sold separately.
Incremental costs of obtaining a contract
that are eligible to capitalization, were immaterial during the reported periods.
Contract assets consist of unbilled accounts
receivable, which occur when a right to consideration for our performance under the customer contract occurs before invoicing to the customer.
The amount of unbilled accounts receivable included within accounts receivable, net on the consolidated balance sheets was immaterial
for the periods presented.
Contract liabilities consist of deferred revenue.
Revenue is deferred when we invoice in advance of performance under a contract. The current portion of the deferred revenue balance is
recognized as revenue during the 12-month period after the balance sheet date.
Cost of Services
Cost of services consists primarily of expenses
related to purchasing data from data suppliers, amounts paid to data suppliers under revenue sharing or fixed price arrangements, software
licenses, and personnel-related costs associated with customer support and professional services, including salaries, benefits and bonuses.
Cost of services also includes allocated overhead costs.
We intend to continue to invest additional
resources in our customer support and professional services organizations to support the growth of our business. Some of these investments,
including certain data purchase costs, support costs and costs of expanding our business internationally, are incurred in advance of generating
revenue, and the failure to generate anticipated revenue or fluctuations in the timing of revenue could affect our gross margin from period
to period.
Operating Expenses
Our operating expenses consist of third-party
cloud infrastructure, sales and marketing, research and development, and general and administrative expenses. Personnel costs are the
most significant component of operating expenses and consist of salaries, benefits, bonuses and share-based compensation. Operating expenses
also include allocated overhead costs.
Allocation of Overhead
Costs
Overhead costs that are not substantially
dedicated for use by a specific functional group are allocated based on headcount. Such costs include costs associated with office facilities,
IT-related personnel and other expenses, such as software and subscription services.
Third-Party Cloud Infrastructure
Third-party cloud infrastructure expenses
include expenses incurred in connection with our customers’ use of our platform and the maintenance of our platform on public clouds,
such as cloud computing or other hosting and data storage, including different regional deployments.
In addition, third-party cloud infrastructure
expenses also include the third-party cloud infrastructure expenses incurred with internal research and development use.
We expect that our third-party cloud infrastructure
expenses will increase in absolute dollars as our business grows, particularly as we incur additional costs related our platforms and
SaaS products. However, we expect that our third-party cloud infrastructure expenses will decrease as a percentage of our revenue over
time.
Research and Development
Research and development costs include personnel-related
expenses associated with our engineering personnel responsible for the design, development and testing of our products, cost of development
environments and tools and allocated overhead. Research and development costs are expensed as incurred.
We expect that our research and development
expenses will increase in absolute dollars as our business grows, particularly as we incur additional costs related to continued investments
in our platform and SaaS products. However, we expect that our research and development expenses will decrease as a percentage of our
revenue over time.
Sales and Marketing
Sales and marketing expenses consist primarily
of personnel-related expenses associated with our sales and marketing staff, including salaries, benefits, bonuses, share-based compensation
and travel. Marketing expenses also include third-party software tools required for marketing automation and consulting and advertising
costs. We expect these costs to increase over time as the market expands and additional tools are implemented. Prior to the disruption
of international travel caused by the COVID-19 pandemic beginning in January 2020, sales and marketing expenses also included international
travel of personnel and expenses related to trade shows and other marketing events. We expect that our sales and marketing expenses will
increase in absolute dollars as we grow our business. However, we expect that our sales and marketing expenses will decrease as a percentage
of our revenue over time.
General and Administrative
General and administrative expenses consist
primarily of personnel-related expenses for our finance, legal, human resources, facilities, and administrative personnel, including salaries,
benefits, bonuses, and share- based compensation. General and administrative expenses also include external legal, accounting, bookkeeping
and other professional services fees, software and subscription services dedicated for use by our general and administrative functions,
and other corporate expenses. General and administrative expenses also include allocated overhead costs.
We incur additional expenses as a result of
becoming a public company, including costs to comply with the rules and regulations applicable to companies listed on a national securities
exchange, costs related to compliance and reporting obligations, and increased expenses for insurance, investor relations, and professional
services. We expect that our general and administrative expenses will increase in absolute dollars as its business grows but will decrease
as a percentage of our revenue over time.
Financial Income (Expense),
Net
Financial income (expense), net, consists
primarily of adjustments related to changes in value of our warrants for redeemable convertible preferred shares and warrants for ordinary
shares, which were charged to financial income (expenses), net.
In addition, financial income (expense), net
also include interest income earned on our cash equivalents and short-term investments and currency related adjustments.
Provision for (Benefit
from) Income Taxes
Provision for (benefit from) income taxes
consists primarily of income taxes in certain foreign and state jurisdictions in which we conduct business. Valuation allowances are provided
when necessary to reduce deferred tax assets to the amount more likely than not to be realized.
A. Results
of Operations
The results of operations presented below
should be reviewed in conjunction with the consolidated financial statements and notes included elsewhere in this Annual Report. For the
discussion of our results of operations for the year ended December 31, 2019, including a year-to-year comparison between the year ended
December 31, 2020 and the year ended December 31, 2019, and a discussion of our liquidity and capital resources for the year ended December
31, 2019, please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in
our Registration Statement on Form F-1 (No. 333-260571) filed with the SEC on October 29, 2021.
Comparison of the Years Ended December 31,
2021 and December 31, 2020
Revenue
|
|
Year Ended December 31, |
|
|
Change |
|
|
Change |
|
|
|
2021 |
|
|
2020 |
|
|
$ |
|
|
% |
|
|
|
(Dollars in thousands) |
|
Revenue by Geography: |
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
176 |
|
|
$ |
43 |
|
|
$ |
133 |
|
|
|
308 |
% |
Asia Pacific |
|
|
329 |
|
|
|
164 |
|
|
|
165 |
|
|
|
101 |
% |
Europe, Middle East and Africa |
|
|
1,218 |
|
|
|
187 |
|
|
|
1,031 |
|
|
|
552 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,723 |
|
|
$ |
394 |
|
|
$ |
1,329 |
|
|
|
337 |
% |
Revenue increased by approximately $1,329
thousand, or 337%, to approximately $1,723 thousand for the year ended December 31, 2021, from approximately $394 thousand for the year
ended December 31, 2020, primarily due to the increase in onboarding OEM data, the development of SaaS features, our increase in total
customers from 22 in 2020 to 55 in 2021, and the revenue from the business acquired in the Neura Acquisition.
Costs of Services and
Operating Expenses
|
|
|
|
|
Change |
|
|
|
|
|
|
2021 |
|
|
2020 |
|
|
$ |
|
|
%
|
|
|
|
(Dollars in thousands) |
|
Cost of services |
|
$ |
953 |
|
|
$ |
336 |
|
|
$ |
617 |
|
|
|
184 |
% |
Cloud infrastructure |
|
$ |
2,814 |
|
|
$ |
1,262 |
|
|
$ |
1,552 |
|
|
|
123 |
% |
Research and development |
|
$ |
12,077 |
|
|
$ |
8,194 |
|
|
$ |
3,883 |
|
|
|
47 |
% |
Sales and marketing |
|
$ |
9,435 |
|
|
$ |
5,168 |
|
|
$ |
4,267 |
|
|
|
83 |
% |
General and administrative |
|
$ |
11,904 |
|
|
$ |
2,515 |
|
|
$ |
9,389 |
|
|
|
373 |
% |
Depreciation and amortization |
|
$ |
532 |
|
|
$ |
147 |
|
|
$ |
385 |
|
|
|
262
|
%
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
|
|
Total costs of services and operating expenses |
|
$ |
37,715 |
|
|
$ |
17,622 |
|
|
$ |
20,093 |
|
|
|
114 |
% |
Cost of services
Cost of services increased by approximately
$617 thousand, or 184%, to approximately $953 thousand for the year ended December 31, 2021, from approximately $336 thousand for the
year ended December 31, 2020. The increase was primarily attributable to an increase in the costs related to purchasing data from data
suppliers.
Third-Party Cloud Infrastructure
Third-party cloud infrastructure expenses
increased by approximately $1,552 thousand, or 123%, to approximately $2,814 thousand for the year ended December 31, 2021, from approximately
$1,262 thousand for the year ended December 31, 2020. The increase was primarily attributable to an increase in traffic and data storage
related to Company’s platform maintenance and internal research and development use.
Research and Development
Research and development expenses increased
by approximately $3,883 thousand, or 47%, to approximately $12,077 thousand for the year ended December 31, 2021, from approximately $8,194
thousand for the year ended December 31, 2020. The increase was primarily attributable to an increase in employee headcount related expenses
and an increase in IT software.
Sales and Marketing
Sales and marketing expenses increased by
approximately $4,267 thousand, or 83%, to approximately $9,435 thousand for the year ended December 31, 2021 from approximately $5,168
thousand for the year ended December 31, 2020. The increase was primarily attributable to headcount related expenses.
General and Administrative
General and administrative expenses increased
by approximately $9,389 thousand, or 373%, to approximately $11,904 thousand for the year ended December 31, 2021 from approximately $2,515
thousand for the year ended December 31, 2020. The increase was primarily attributable to an increase in headcount and an increase in
professional services related to the Recapitalization and Acquisitions.
Depreciation and amortization
Depreciation and amortization increased by
approximately $385 thousand, or 262%, to approximately $532 thousand for the year ended December 31, 2021, from approximately $147 thousand
for the year ended December 31, 2020. The increase was primarily attributable to the amortization of technology with a useful life of
six years that was acquired by Neura and began amortizing in October 2021.
Financial (Expense) Income,
Net
|
|
|
|
|
Change |
|
|
Change |
|
|
|
2021 |
|
|
2020 |
|
|
$ |
|
|
%
|
|
|
|
(Dollars in thousands) |
|
Financial (Expense) Income, Net |
|
$ |
5,280 |
|
|
$ |
(2,737 |
) |
|
$ |
8,017 |
|
|
|
(293 |
)% |
Financial income was $5,280 thousand in the
year ended December 31, 2021 compared to financial expense of $2,737 thousand in the year ended December 31, 2020. The change was primarily
related to the revaluation of warrants and redeemable convertible preferred shares.
B. Liquidity
and Capital Resources
From our inception through the year ended
December 31, 2020, we financed our operations primarily through proceeds received from sales of equity securities and payments received
from our customers as further detailed below. In the year ended December 31, 2021, our principal source of liquidity was the $224 million
of net proceeds received from the Business Combination. As of December 31, 2021 and December 31, 2020, our principal sources of liquidity
were cash, cash equivalents, restricted cash and short-term and long-term investments totaling approximately $208.1 million and $27.8
million, respectively. Our investments consist of US and Israeli deposits.
We believe that our existing cash, cash equivalents,
and short-term and long-term investments will be sufficient to support working capital and capital expenditure requirements for at least
the next 12 months from the date of this Annual Report. Our future capital requirements will depend on many factors, including our revenue
growth rate, the timing and the amount of cash received from customers, the expansion of sales and marketing activities, the timing and
extent of spending to support development efforts, the price at which we are able to purchase public cloud capacity, expenses associated
with our international expansion, the introduction of platform enhancements, and the continuing market adoption of our platform. In the
future, we may enter into arrangements to acquire or invest in complementary businesses, products, and technologies. We may be required
to seek additional equity or debt financing. In the event that we require additional financing, we may not be able to raise such financing
on terms acceptable to us or at all. If we are unable to raise additional capital or generate cash flows necessary to expand our operations
and invest in continued innovation, we may not be able to compete successfully, which would harm our business, results of operations,
and financial condition.
The following table shows a summary of our
cash flows for the periods presented:
|
|
Year Ended December 31, |
|
(dollars in thousands) |
|
2021 |
|
|
2020 |
|
Net cash used in operating activities |
|
$ |
(33,361 |
) |
|
$ |
(14,135 |
) |
Net cash provided by (used in) investing activities |
|
$ |
2,680 |
|
|
$ |
(1,832 |
) |
Net cash provided by financing activities |
|
$ |
223,776 |
|
|
$ |
20,100 |
|
Net increase (decrease) in cash and cash equivalents and short-term
restricted cash equivalents |
|
$ |
193,095 |
|
|
$ |
4,133 |
|
Operating Activities
Our primary uses of cash from operating activities
are for personnel-related expenses, sales and marketing expenses, third-party cloud infrastructure expenses and overhead expenses.
Cash used in operating activities mainly consist
of our net loss adjusted for certain non-cash items, including share-based compensation, change in the value of the warrants, depreciation
expenses and changes in operating assets and liabilities during each period.
During the year ended December 31, 2021 and
2020, net cash used in operating activities was approximately $33.4 million and $14.1 million, respectively. The primary factors affecting
operating cash flows during these periods were net losses of approximately $30.9 million and $20.0 million during the years ended December
31, 2021 and December 31, 2020, respectively.
Investing Activities
Cash provided by investing activities during
the year ended December 31, 2021 was approximately $10.0 million as a result of net investment in Neura, approximately $12.8 million as
a result of net releases of short-term investments and purchases of property and equipment to support additional office facilities and
long term assets of approximately $0.2 million. Cash used in investing activities during the year ended December 31, 2020 was approximately
$1.8 million as a result of approximately $1.4 million in short-term investments and purchases of property and equipment to support additional
office facilities of approximately $0.4 million.
Financing Activities
Cash provided by financing activities for the year ended December 31, 2021 was approximately $223.8 million primarily as a result of proceeds
from the Business Combination, net of issuance costs, and $44 thousand from option exercises. Cash provided by financing activities for
the year ended December 31, 2020 was approximately $20.1 million primarily as a result of proceeds from the issuance of redeemable convertible
preferred shares and warrants, net of issuance costs.
Contractual Obligations
and Commitments
Future minimum lease payments under non-cancelable
operating leases at December 31, 2021, are $945 thousand. See Note 11 of the Notes to the Consolidated Financial Statements including
in “Item 8. Financial Statements and Supplementary Data.”
Our ability to fund our material obligations
will depend on our ability to generate cash in the future. Our future ability to generate cash from operations is, to a certain extent,
subject to general economic, financial, competitive, regulatory and other conditions. Based on our current level of operations, we believe
that our existing cash balances and expected cash flows generated from operations is sufficient to meet our operating requirements for
at least the next twelve months.
Off-Balance Sheet Arrangements
The Company has a bank guaranty to the leased
premises’ landlord of $150.1 thousand.
C. Research
and Development, Patents and Licenses, Etc.
Our research and development activities are
primarily located in Israel.
Research and development expenses are primarily
comprised of costs of our research and development personnel and other development-related expenses. Research and development personnel
focus primarily on continuously enhancing our vehicle data and mobility intelligence platform. We invest in research and development in
order to address our customer’s needs across a range of use cases and create unique differentiation for our business and offerings
in the market. For a description of our research and development expenses and the amounts that we have incurred over the last three years
pursuant to those programs, please see “Item 5. Operating and Financial Review and Prospects— Components of Results of Operations—Research
and Development” and “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Research and Development.”
D. Trend
Information
Other than as disclosed elsewhere in this
Annual Report, we are not aware of any trends, uncertainties, demands, commitments or events for the period from January 1, 2021 to December
31, 2021 that are reasonably likely to have a material adverse effect on our revenue, income, profitability, liquidity or capital resources,
or that caused that disclosed financial information to be not necessarily indicative of future operating results or financial condition.
E. Critical
Accounting Policies and Estimates
Our consolidated financial statements and
the related notes thereto included elsewhere in this Annual Report are prepared in accordance with GAAP. The preparation of consolidated
financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue,
costs and expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe
to be reasonable under the circumstances. Actual results could differ significantly from the estimates made by management. To the extent
that there are differences between our estimates and actual results, our future financial statement presentation, financial condition,
results of operations, and cash flows will be affected.
We believe that the accounting policies described
below involve a substantial degree of judgment and complexity. Accordingly, these are the policies we believe are the most critical to
aid in fully understanding and evaluating our consolidated financial condition and results of operations. For further information, see
Note 2 to our consolidated financial statements included elsewhere in this Annual Report.
Revenue Recognition
We account for revenue in accordance with
Accounting Standards Codification (ASC) Topic 606, Revenue From Contracts With Customers (ASC 606) for all periods presented.
Our SaaS subscriptions revenues consist primarily
of fees to provide our customers access to our cloud-based platform, which includes routine customer support. Subscription service contracts
do not provide customers with the right to take possession of the software, are cancelable, and do not contain general rights of return.
Generally, subscription revenues are recognized ratably over the contractual term of the arrangement, beginning on the date that the service
is made available to the customer.
Subscription contracts typically have a term
of one to three years and are priced on a fixed-fee or a pay-per-use basis. For fixed-fee basis contracts, invoicing typically occurs
in annual, quarterly, or monthly installments at the beginning of each year of the subscription period or at the end of each year, quarter,
or month, respectively. For pay per use basis contracts, we apply the ‘as-invoiced’ practical expedient that permits us to
recognize revenue in the amount to which it has a right to invoice the customer.
MI services typically have a term of up to
one year and are priced on a fixed-fee basis. For fixed-fee basis contracts, invoicing typically occurs when the service is delivered.
Performance obligations promised in a contract are identified based on the services that will be transferred to the customer that are
both capable of being distinct, whereby the customer can benefit from the services either on their own or together with other resources
that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer
of the services is separately identifiable from other promises in the contract.
We provide access to our cloud-hosted software,
without providing the customer with the right to take possession of our software, which we consider to be a single performance obligation.
If the contract contains a single performance
obligation, the entire transaction price is allocated to the single performance obligation. For contracts that contain multiple performance
obligations, we allocate the transaction price for each contract to each performance obligation based on the relative standalone selling
price for each performance obligation. In instances where performance obligations do not have observable standalone sales, we utilize
available information that may include market conditions, pricing strategies, the economic life of the software, and other observable
inputs or uses the expected cost-plus margin approach to estimate the price we would charge if the products and services were sold separately.
Incremental costs of obtaining a contract
that are eligible to capitalization, were immaterial during the reported periods.
Contract assets consist of unbilled accounts
receivable, which occur when a right to consideration for our performance under the customer contract occurs before invoicing to the customer.
The amount of unbilled accounts receivable included within accounts receivable, net on the consolidated balance sheets.
Contract liabilities consist of deferred revenue.
Revenue is deferred when we invoice in advance of performance under a contract. The current portion of the deferred revenue balance is
recognized as revenue during the 12-month period after the balance sheet date.
Share-Based Compensation
We measure share-based awards granted to our
employees, consultants or advisors or our affiliates based on their fair value on the date of the grant and recognizes compensation expense
of those awards, over the requisite service period, which is generally the vesting period of the respective award. We apply the straight-line
method of expense recognition to all awards with only service-based vesting conditions.
We estimate the fair value of each share option
grant on the date of grant using the Black-Scholes option-pricing model, which uses as inputs the fair value of the ordinary shares and
assumptions for the volatility of the ordinary shares, the expected term of its share options, the risk-free interest rate for a period
that approximates the expected term of our share options and their expected dividend yield.
Determination of the Fair
Value of the Ordinary Shares
The fair value of the ordinary shares underlying
our share-based awards has historically been determined by our board of directors, with input from management and corroboration from contemporaneous
third-party valuations. We believe that our board of directors has the relevant experience and expertise to determine the fair value of
our ordinary shares. Given the absence of a public trading market for the ordinary shares, and in accordance with the American Institute
of Certified Public Accountants Practice Aid, Valuation of Privately Held Company Equity Securities Issued as Compensation, our board
of directors exercised reasonable judgment and considered numerous objective and subjective factors to determine the best estimate of
the fair value of the ordinary shares at each grant date. These factors include:
|
• |
contemporaneous valuations of the ordinary shares performed by independent third-party specialists; |
|
• |
the prices, rights, preferences, and privileges of our preferred shares relative to those of the ordinary shares; |
|
• |
the lack of marketability inherent in the ordinary shares; |
|
• |
our actual operating and financial performance; |
|
• |
our current business conditions and projections; |
|
• |
our history and the introduction of new products; |
|
• |
our stage of development; |
|
• |
the likelihood of achieving a liquidity event, such as an initial public offering (IPO), a merger, or acquisition of us, given prevailing
market conditions; |
|
• |
the operational and financial performance of comparable publicly traded companies; and |
|
• |
the U.S. and global capital market conditions and overall economic conditions. |
Our valuations were prepared in accordance
with the guidelines in the Practice Guide, which prescribes several valuation approaches for setting the value of an enterprise, such
as the cost, income and market approaches, and various methodologies for allocating the value of an enterprise to the ordinary shares.
For valuations from June 2016 to February 2020, we utilize the option pricing backsolve method, or OPM, based upon recent financing rounds
of Series Seed Preferred Shares, which we believe was the most appropriate for each of the valuations of the ordinary shares. The OPM
treats our security classes as call options on total equity value and allocates our equity value across our security classes based on
the rights and preferences of the securities within the capital structure under an assumed liquidation event. The OPM method is used when
the range of possible future outcomes is difficult to predict and forecasts would be highly speculative. We believe this method was the
most appropriate given the expectation of various potential liquidity outcomes and the difficulty of selecting appropriate enterprise
values given our early stage of development.
For the May 2020 valuation, in valuing the
ordinary shares, the fair value of our business was determined using the income approach with input from management. The income approach
estimates value based on the expectation of future cash flows that a company will generate. These future cash flows are discounted to
their present values using a discount rate that is derived from an analysis of the cost of capital of comparable publicly traded companies
in our industry or similar business operations as of each valuation date and is adjusted to reflect the risks inherent in our cash flows.
The fair value of our business determined by the income approach was then allocated to the ordinary shares using the option-pricing method
(OPM).
For the September and December 2020 valuations,
we utilize a hybrid model of two scenarios: (1) M&A and (2) IPO. The M&A scenario was based on the fair value of our
business using the income approach with input from management. The IPO scenario was based on various market indications and discussions
with potential investors.
Application of these approaches and methodologies
involves the use of estimates, judgments, and assumptions that are highly complex and subjective, such as those regarding our expected
future revenue, expenses, and future cash flows, discount rates, the selection of comparable public companies, and the probability of
and timing associated with possible future events. Changes in any or all of these estimates and assumptions or the relationships between
those assumptions impact our valuations as of each valuation date and may have a material impact on the valuation of ordinary shares.
Once a public trading market for the ordinary
shares has been established in connection with the completion of the Business Combination, our board of directors determined the fair
value of each share of underlying ordinary shares based on the closing price of the ordinary shares as reported on the date of grant.
Future expense amounts for any particular period could be affected by changes in our assumptions or market conditions.
Recapitalization
On August 13, 2021 (the “Closing Date”),
we consummated a recapitalization transaction (the “Recapitalization”) pursuant to the Business Combination Agreement. The
Business Combination was accounted for as a recapitalization as pre-combination Otonomo was determined to be the accounting acquirer under
Financial Accounting Standards Board (FASB)’s Accounting Standards Codification Topic 805, Business Combinations (ASC 805). In connection
with the recapitalization, all outstanding capital stock of the pre-combination Otonomo was converted into ordinary shares, representing
a recapitalization, and the net assets of SWAG were acquired at historical cost, with no goodwill or intangible assets recorded. The pre-combination
Otonomo was deemed to be the predecessor of the Company, and the consolidated assets and liabilities and results of operations prior to
the Closing Date are those of the pre-combination Otonomo.
In addition, upon the closing of the Recapitalization,
we issued 8,625,000 public warrants and 5,200,000 private warrants to purchase our ordinary shares.
Each warrant entitles the holder to purchase
one ordinary share at a price of $11.50 per share, subject to adjustments. The warrants are until the earlier of August 13, 2026 and upon
redemption or liquidation. We may redeem the outstanding warrants in whole and not in part at a price of $0.01 per warrant at any time,
provided that the last sale price of the ordinary shares on Nasdaq equals or exceeds $18 per share, subject to adjustments, for any 20-trading
days within a 30-trading day period ending three business days prior to the date on which we send the notice of redemption to the warrant
holders. The private warrants have similar terms as the public warrants, except that the private warrants may be exercised on a cashless
basis at the holder’s option and the private warrants will not be redeemed by us as long as they are held by the initial purchasers
or their permitted transferees, but once they are transferred, they have the same rights as the public warrants. The public warrants were
classified as a component of permanent equity and the private warrants were classified as a liability measured at fair value pursuant
to ASC 480 “Distinguishing Liabilities from Equity” and ASC 815 “Derivatives and Hedging.”
Recently Issued Accounting Pronouncements
See Note 2 to our financial statements included
elsewhere in this Annual Report for recently issued accounting pronouncements not yet adopted as of the date of this Annual Report.
Item 6. |
Directors, Senior Management and Employees |
A. Directors
and Senior Management
Executive Officers and Directors
The following table provides information about
our directors and executive officers as of March 31, 2022. The address for each of the directors and executive officers is 16 Abba Eban
Blvd. Herzliya Pituach 467256, Israel.
Name
|
Age
|
Position(s)
|
Ben Volkow |
48 |
Chief Executive Officer, Founder and Director |
Bonnie Moav |
44 |
Chief Financial Officer |
Anders Truelsen |
49 |
Chief Revenue Officer |
Doron Simon |
56 |
Executive Vice President of Corporate Development and Strategy
|
Matan Tessler |
40 |
Executive Vice President of Product |
Yuval Cohen |
56 |
Director |
Andrew Geisse |
65 |
Director |
Amit Karp |
43 |
Director |
Benny Schnaider |
64 |
Director |
Jonathan Huberman |
57 |
Director |
Vered Raviv Schwarz |
53 |
Director |
Ben Volkow, Chief Executive
Officer, Founder and Director
Ben
Volkow founded Otonomo in 2015 and has served as Otonomo’s Chief Executive
Officer since then. As founder and CEO of three successful companies, Mr. Volkow brings an extensive track record and rich entrepreneurial
experience. From 2012 to 2015, Mr. Volkow served as a Business Unit General Manager at F5 Networks (Nasdaq: FFIV), which he joined after
the acquisition of Traffix Communication Systems Ltd., where he was Co-Founder and CEO from 2006 to 2012. As the founder and CEO of Traffix,
Mr. Volkow built a multi-million dollar global business. From 2003 to 2005, Mr. Volkow managed R&D groups in Sendo (UK), which provided advanced
mobile data solutions. From 2001 to 2003, Mr. Volkow filled various roles at Panasonic Mobile Communications (UK), which included building
their first European market products. Mr. Volkow was the Co-founder of VC-backed Sedona Networks, a provider of advanced network solutions.
Mr. Volkow studied Computer Science at the Academic College of Tel Aviv-Yaffo.
Bonnie Moav, Chief Financial
Officer
Bonnie
Moav has served as Otonomo’s Chief Financial Officer since 2017. From
2011 to 2017, Ms. Moav served as Director and Vice President Finance at Vizrt Technologies (formerly traded on the Oslo Stock Exchange),
a leading provider of software-defined visual storytelling tools (#SDVS) for media content creators, where she oversaw the financial management
of the Vizrt’s annual turnover of over $140M and supported these aspects of Vizrt’s activity through to its acquisition by
a private equity fund. From 2010 to 2011, Ms. Moav served as a controller at Checkpoint Technologies Ltd a leading software company traded
on Nasdaq. From 2001 to 2009, Ms. Moav was a Senior Manager at Ernst & Young, where she was responsible for designing and implementing
financial strategies, processes and policies. Ms. Moav is a Certified Public Accountant and holds an MBA (Major in Finance) from the Tel
Aviv University, a BA in Accounting from the Tel-Aviv University and L.LB in Law form the Tel-Aviv University.
Anders Truelsen, Chief
Revenue Officer
Anders
Truelsen has served as Otonomo’s Chief Revenue Officer since July
2021. Previously, Mr. Truelsen was the Managing Director of the Enterprise Business Unit of TomTom International BV (“TomTom”),
where he was responsible for the TomTom’s B2B offerings to the world’s largest technology companies. At TomTom, his focus
was on building strategic partnerships with top companies, growing the revenue and relationships. Prior to TomTom, Mr. Truelsen worked
for a number of large-scale companies, including Alm. Brand Bank, Volkswagen and Audi Finance. Mr. Truelsen has over 20 years of experience
in managing teams across a variety of business segments and managing relationships with company executives. Mr. Truelsen received a Diploma
in business and finance from Niels Brock Business College in Copenhagen.
Doron Simon, Executive
Vice President of Corporate Development and Strategy
Doron
Simon has served as Otonomo’s Executive Vice President of Corporate
Development and Strategy since August 2021. From 2011 to 2020, Mr. Simon served as VP Corporate Development, Head of Cloud and in General
Manager roles at NICE (NASDAQ: NICE), a leading provider of software solutions in the area of customer experience, business outcomes and
compliance. At NICE, Mr. Simon helped shape and execute a strategic shift to the cloud and was involved in numerous merger and acquisition
transactions. Prior to his tenure at NICE, Mr. Simon held multiple executive-level position at Tower Semiconductors, including as VP Marketing
and President of Tower USA. Tower (NASDAQ: TSEM), a leading specialty foundry with global operations. Mr. Simon is also an active investor
and strategic advisor helping early-stage companies to form and realize their strategies and vision leveraging his extensive go to market,
growth, strategy and mergers and acquisitions experiences.
Matan Tessler, Executive
Vice President of Product
Matan
Tessler has served as Otonomo’s Executive President of Product since September 2019. Mr. Matan has extensive experience in
building and leading industry-shaping products, heading product teams, and driving product growth. Prior to Otonomo, he worked in product
management at a number of companies, including Facebook and AppsFlyer. Mr. Tessler holds a BA in Computer Science and a Global MBA from
Reichman University.
Yuval Cohen, Director
Yuval
Cohen has served as a member of the Otonomo board of directors since 2015.
Mr. Cohen is the Founder and Managing Partner of StageOne Ventures. Mr. Cohen currently serves on the board of directors of
the following companies: Minerva Labs Ltd., SilverFort Inc., Model 9 Software Ltd., DeepCoding Ltd., Espagon Ltd., Theator Inc., EyeZon
Ltd., Kovrr Inc., Polygon Media and True Meeting Inc. Mr. Cohen also previously served on the board of directors of Capitalise Ltd.
Prior to founding StageOne Ventures, Mr. Cohen spent several years working in the Capital Markets division of IDB, Israel’s
largest conglomerate, where he led several successful venture capital efforts. Mr. Cohen holds a Bachelors in Business Administration
and an LL.B and a Masters in Business Administration from the Hebrew University of Jerusalem.
Andrew Geisse, Director
Andrew
Geisse has served as a member of the Otonomo board of directors since 2016.
He is an Operating Partner of Bessemer Venture Partners and has over 40 years of experience working in the technology industry. Mr. Geisse
is the former CEO of AT&T Business Solutions and the former CIO of AT&T, Inc. Since 2018, Mr. Geisse has served as member
of the board of directors of RM2, a smart, reusable pallet company. Mr. Geisse served as a member of the board of directors of Broadsoft,
a Nasdaq-listed company, from 2015 until its acquisition by Cisco Systems, Inc. in 2018. Mr. Geisse also previously served on the
board of directors of FixStream, an artificial intelligence platform for information technology operations, and iSight Partners, a cybersecurity
company. Mr. Geisse holds a Bachelor of Arts in Mathematics and Economics from the University of Missouri and a MBA from the Olin
School of Business at Washington University.
Amit Karp, Director
Amit
Karp has served as a member of the Otonomo board of directors since
2015. He is a Partner at Bessemer Venture Partners, a venture capital firm which he joined in 2012. Mr. Karp currently serves as
a member of the board of directors of various privately held companies. Mr. Karp also previously served as a member of the board
of directors of ScyllaDB Ltd. Prior to joining Bessemer Venture Partners, Mr. Karp worked at McKinsey and Co. as a Senior Associate
and at Mercado Software as a developer. Mr. Karp holds a Bachelor of Science in Computer Science from Technion, the Israel Institute
of Technology and a Masters in Business Administration from the MIT Sloan School of Management.
Benny Schnaider, Director
Benny
Schnaider has served as a member of the Otonomo board of directors since
2016. Mr. Schnaider currently serves as a Partner at StageOne Ventures. Mr. Schnaider is a prolific investor and startup entrepreneur
and also currently serves as the Co-Founder and President of Salto Labs, a business app configuration platform. Prior to Salto,
Mr. Schnaider founded Pentacom, which was acquired by Cisco in 2000, co-founded P-Cube, which was acquired by Cisco in
2004, co-founded and served as CEO of Qumranet, which was acquired by Red Hat in 2008, served as the chairman of Traffix Systems,
which was acquired by F5 in 2012, and served as Chairman, President and Co-Founder of Ravello Systems, which was acquired by
NetApp in 2020. Mr. Schnaider is a member of the board of directors of Salto, vHive, Colabo and ScyllaDB. Mr. Schnaider also
previously served on the board of directors of Ravello and Spot.IO. Mr. Schnaider holds a Bachelor of Science in Computer Engineering
from Technion, the Israel Institute of Technology and a Master of Science in Engineering Management from Santa Clara University.
Jonathan Huberman, Director
Jonathan
Huberman has served as a member of the Otonomo board of directors since
the closing of the Business Combination on August 13, 2021. Mr. Huberman previously served as SWAG’s Chairman, Chief Executive
Officer and Chief Financial Officer since inception and has over 25 years of high-tech business leadership experience. Previously, Mr. Huberman
served as an officer and director of Software Acquisition Group Inc., a blank check company, which in October 2020 successfully closed
its business combination with CuriosityStream Inc. (Nasdaq: CURI) (“CuriosityStream”), a global streaming media service that
provides factual content on demand. Mr. Huberman currently serves on the board of directors of CuriosityStream. From 2017 to 2019
Mr. Huberman was Chief Executive Officer of Ooyala, a provider of media workflow automation, delivery and monetization solutions,
which he and Mike Nikzad, SWAG’s Vice President of Acquisitions and Director, acquired from Telstra in 2018. Together with Mr. Nikzad,
they turned around an underperforming company and sold Ooyala’s three core business units to Invidi Technologies, Brightcove (Nasdaq:
BCOV) and Dalet (EPA: DLT), major players in the same sector. Previously, Mr. Huberman served as the Chief Executive Officer of Syncplicity,
a SaaS enterprise data management company, which he sourced and acquired from EMC and engineered an exit to Axway (EPA: AXW). Prior to
this, from 2013 to 2015, Mr. Huberman was the Chief Executive Officer of Tiburon, an enterprise software company serving the public
safety sector which he sold to Tritech Systems, and before that he was the Chief Executive Officer at Iomega Corporation (NYSE: IOM),
a consumer and distributed enterprise storage solutions provider. After Iomega was acquired by EMC Corporation in 2008, Mr. Huberman
served as President of the Consumer and Small Business Division of EMC. In addition to his experience leading turnarounds and exits at
five technology companies, Mr. Huberman spent nine years as an investor for the Bass Family interests where he led investments in
private and public companies. He also had senior roles leading the operations of the technology investments of the Gores Group and Skyview
Capital. In the last five years he has served as a director of Aculon, Inc., a privately held provider of easy-to-apply nanotech
surface-modification technologies, as well as Venture Corporation Limited (SGX: V03) a high-tech design and manufacture firm based in
Singapore. Mr. Huberman holds a Bachelor of Arts in Computer Science from Princeton University and an MBA from The Wharton School
at the University of Pennsylvania.
Vered Raviv Schwarz, Director
Vered Raviv
Schwarz has served as a member of the Otonomo board of directors since the
closing of the Business Combination on August 13, 2021. Ms. Schwarz is the President and Chief Operating Officer of Guesty,
Inc., a property management platform for short-term and vacation rentals. Prior to her time at Guesty, Ms. Schwarz served as the
Chief Operating Officer of Fiverr, an online marketplace for freelance services, from 2012 to 2018. Before Fiverr, Ms. Schwarz served
as the General Counsel and Vice President of Global Operations at Kenshoo and MediaMind (Sizmek Inc.) and as the Vice President of Legal
Affairs at Radware Ltd. Prior to joining Radware Ltd, Ms. Schwarz practiced as a lawyer, specializing in corporate law, mergers and
acquisitions and initial public offerings. Ms. Schwarz holds an LL.B and an LL.M in Commercial Law from Tel Aviv University.
B. Compensation
of Directors and Executive Officers
Directors
Under the Companies Law, the compensation
of our directors requires the approval of our compensation committee, the subsequent approval of the board of directors and, unless exempted
under the regulations promulgated under the Companies Law, the approval of the shareholders at a general meeting. If the compensation
of our directors is inconsistent with our stated compensation policy, then, the compensation committee and the board of directors may
approve such compensation, provided that those provisions that must be included in the compensation policy according to the Companies
Law have been considered by the compensation committee and board of directors. Furthermore, shareholder approval will also be required,
provided that:
|
• |
at least a majority of the shares held by all shareholders who are not controlling shareholders and do not have a personal interest
in such matter, present and voting at such meeting, are voted in favor of the compensation package, excluding abstentions; or |
|
• |
the total number of shares of non-controlling shareholders and shareholders who do not have a personal interest in such matter voting
against the compensation package does not exceed 2% of the aggregate voting rights in Otonomo. |
Executive Officers other
than the Chief Executive Officer
The Companies Law requires the approval of
the compensation of a public company’s executive officers (other than the chief executive officer) in the following order: (i) the
compensation committee, (ii) the company’s board of directors, and (iii) if such compensation arrangement is inconsistent with the
company’s stated compensation policy, the company’s shareholders (by a special majority vote as discussed above with respect
to the approval of director compensation). However, if the shareholders of the company do not approve a compensation arrangement with
an executive officer that is inconsistent with the company’s stated compensation policy, the compensation committee and board of
directors may override the shareholders’ decision if each of the compensation committee and the board of directors provide detailed
reasons for their decision.
An amendment to an existing arrangement with
an office holder (who is not a director) requires only the approval of the compensation committee if the compensation committee determines
that the amendment is not material in comparison to the existing arrangement. However, according to regulations promulgated under the
Companies Law, an amendment to an existing arrangement with an office holder (who is not a director) who is subordinate to the chief executive
officer shall not require the approval of the compensation committee if (i) the amendment is approved by the chief executive officer,
(ii) the company’s compensation policy provides that a non-material amendment to the terms of service of an office holder (other
than the chief executive officer) may be approved by the chief executive officer and (iii) the engagement terms are consistent with the
company’s compensation policy.
Chief Executive Officer
Under the Companies Law, the compensation
of a public company’s chief executive officer is required to be approved by: (i) the company’s compensation committee; (ii)
the company’s board of directors, and (iii) the company’s shareholders (by a special majority vote as discussed above with
respect to the approval of director compensation). However, if the shareholders of the company do not approve the compensation arrangement
with the chief executive officer, the compensation committee and board of directors may override the shareholders’ decision if each
of the compensation committee and the board of directors provide detailed reasons for their decision. The approval of each of the compensation
committee and the board of directors should be in accordance with the company’s stated compensation policy; however, in special
circumstances, they may approve compensation terms of a chief executive officer that are inconsistent with such policy provided that they
have considered those provisions that must be included in the compensation policy according to the Companies Law and that shareholder
approval was obtained (by a special majority vote as discussed above with respect to the approval of director compensation). In addition,
the compensation committee may waive the shareholder approval requirement with regards to the approval of the engagement terms of a candidate
for the chief executive officer position, if they determine that the compensation arrangement is consistent with the company’s stated
compensation policy, and that the chief executive officer did not have a prior business relationship with the company or a controlling
shareholder of the company and that subjecting the approval of the engagement to a shareholder vote would impede the company’s ability
to employ the chief executive officer candidate.
Aggregate Compensation
of Office Holders
The aggregate compensation accrued and paid
by our company and its subsidiaries to our executive officers and directors, including share‑based compensation, for the year
ended December 31, 2021, was approximately $19.3 million. This amount includes approximately $0.237 million to its employees executive
officers set aside or accrued to provide pension, severance, retirement or similar benefits or expenses, but does not include business
travel, relocation, professional and business association dues and expenses reimbursed to office holders, and other benefit costs commonly
reimbursed or paid by companies in Israel. In addition, the company paid a special bonus in 2021 to each of our executive officers
in the total amount of $0.4 million as an award for the successful closing of the Neura Acquisition.
As of December 31, 2021, options to purchase
4,401,714 of our ordinary shares granted to our executive officers and directors were outstanding under the 2016 Share Option Plan and
options to purchase 434,484 of our ordinary shares granted to our executive officers and directors were outstanding under the 2021 Share
Incentive Plan, respectively, at a weighted average exercise price of $0.213 and $9.230, respectively. In addition, as of December 31,
2021, RSUs covering an aggregate total of 2,202,617 ordinary shares granted to our executive officers and other employees were outstanding
under the 2021 Share Incentive Plan.
The summary below outlines the compensation
granted to our five most highly compensated executive officers during the year ended December 31, 2021. The compensation detailed
in the summary below refers to actual compensation granted or paid during such year:
Mr. Ben Volkow, Co-Founder, Chief Executive
Officer and Chairman of the Board. Compensation expenses recorded in 2021 of $272.4 thousand in salary expenses, $72.7 thousand in Value
of Social benefits costs, $5,106.1 thousand in Value of Equity-Based Compensation and $883.5 thousand in All Other Compensation represents,
among other things, retention compensation, and the 2021 management bonus. Compensation represents the aggregate yearly gross monthly
salaries or other payments with respect to the Company's executive officers for the year 2021. Mr. Volkow does not receive extra compensation
for his service as a member of the board of directors.
Mr. Anders Truelsen, Chief Revenue Officer.
Compensation expenses recorded in 2021 of $180.8 thousand in salary expenses, $27.8 thousand in Value of Social benefits costs, $5,010.3
thousand in Value of Equity-Based Compensation and $117.0 thousand in All Other Compensation represents, among other things, retention
compensation, the 2021 management bonus, and sales commission. Employment began on July 26, 2021.
Mr. Doron Simon, Executive Vice President
of Corporate Development and Strategy. Compensation expenses recorded in 2021 of $132.5 thousand in salary expenses, $7.7 thousand in
Value of Social benefits costs, $2,567.0 thousand in Value of Equity-Based Compensation and $26.3 thousand in All Other Compensation represents,
among other things, retention compensation, and the 2021 management bonus. Employment began on August 2, 2021.
Ms. Bonnie Moav, Executive Financial Officer.
Compensation expenses recorded in 2021 of $230.9 thousand in salary expenses, $63.9 thousand in Value of Social benefits costs, $999.2
thousand in Value of Equity-Based Compensation and $478.4 thousand in All Other Compensation represents, among other things, retention
compensation, and the 2021 management bonus.
Mr. Matan Tesller, Executive Vice President
of Product. Compensation expenses recorded in 2021 of $241.5 thousand in salary expenses, $65.4 thousand in Value of Social benefits costs,
$975.4 thousand in Value of Equity-Based Compensation and $333.6 thousand in All Other Compensation represents, among other things, retention
compensation, and the 2021 management bonus.
We pay to each of our non-employee directors
an annual cash retainer as follows: chairperson of the board of directors: $30,000; chairperson of the audit committee, compensation committee
and nominating committee: $30,000, $30,000 and $30,000, respectively; member of the audit committee, compensation committee and nominating
committee: $20,000, $20,000 and $20,000, respectively; and each other director: $30,000. Such compensation will not be cumulative and
the non-employee directors will receive the highest level of compensation to which they are entitled. Additionally, we grant each of our
non-employee director annual grants in a value of up to $166,140 each. In addition, Benny Schnaider was issued grants valued at $518,116
on January 19, 2021. We also intend to reimburse them for expenses arising from their board membership.
Share Option Plans
2016 Share Option Plan
On February 11, 2016, we adopted the
Plan, and on December 26, 2016, we adopted the Sub-Plan (collectively, the “2016 Share Option Plan”). The 2016
Share Option Plan provides for the grant of options to employees, directors, office holders, services providers, and consultants of Otonomo
and its subsidiaries. As of December 31, 2021, a total of 9,121,802 options to purchase ordinary shares were outstanding under the 2016
Share Option Plan, with a weighted average exercise price of $0.233 per share. Our board of directors, or a duly authorized committee
of our board of directors, administers the 2016 Share Option Plan.
We no longer grant any awards under the 2016
Share Option Plan as it was superseded by our 2021 Share Incentive Plan, although outstanding options previously granted under the 2016
Share Option Plan remain governed by the 2016 Share Option Plan. 2021 Share Incentive Plan
2021 Share Incentive Plan
In connection with the closing of the Business
Combination, we adopted a new share incentive plan (the “2021 Plan”), under which we may grant equity-based incentive awards
to attract, motivate and retain the talent for which it competes. Following the adoption of the 2021 Plan, we no longer grant any awards
under the 2016 Share Option Plan, though previously granted options under the 2016 Share Option Plan remain outstanding and governed by
the 2016 Share Option Plan.
The maximum number of Otonomo ordinary shares
available for issuance under the 2021 Plan is equal to the sum of (i) 3,155,867 shares (which also includes any shares subject to awards
under the 2016 Share Option Plan that have expired or become unexercisable without having been exercised), and (ii) an annual increase
on the first day of 2022 and ending in and including the last year of the term of the 2021 Plan, equal to the lesser of (A) 5% of the
total number of Otonomo ordinary shares outstanding as of the end of the last day of the immediately
preceding calendar year, and (B) such smaller amount of Otonomo ordinary shares as is determined by the committee established by the Otonomo
board of directors to administer the 2021 Plan, if so determined prior to January 1st of the calendar year in which the increase will
occur; provided, however, that no more than 30,000,000 ordinary shares in total may be issued upon the exercise of incentive stock options,
or ISOs, under the 2021 Plan. If permitted by our board of directors, shares tendered to pay the exercise price or withholding tax obligations
with respect to an award granted under the 2021 Plan or the 2016 Share Option Plan may again be available for issuance under the 2021
Plan. Our board of directors may also reduce the number of ordinary shares reserved and available for issuance under the 2021 Plan in
its discretion.
Our board of directors, or a duly authorized
committee of our board of directors, administers the 2021 Plan. Under the 2021 Plan, the administrator has the authority, subject to applicable
law, to interpret the terms of the 2021 Plan and any award agreements or awards granted thereunder, designate recipients of awards, determine
and amend the terms of awards, including the exercise price of an option award, the fair market value of an ordinary share, the time and
vesting schedule applicable to an award or the method of payment for an award, accelerate or amend the vesting schedule applicable to
an award, prescribe the forms of agreement for use under the 2021 Plan and take all other actions and make all other determinations necessary
for the administration of the 2021 Plan.
The administrator also has the authority to
amend and rescind rules and regulations relating to the 2021 Plan or terminate the 2021 Plan at any time before the date of expiration
of its ten-year term (unless extended by the administrator pursuant to the provisions of the 2021 Plan).
The 2021 Plan provides for granting awards
under various tax regimes, including, without limitation, in compliance with Section 102 and Section 3(i) of the Ordinance and
for awards granted to our United States employees or service providers, including “incentive stock options” (“ISOs”)
or nonqualified stock option awards to those recipients who are deemed to be residents of the United States for tax purposes, in compliance
with the provisions of the Code, including, without limitations, Section 422, 409A and 83 of the Code.
Section 102 of the Ordinance allows employees,
directors and officers who are not controlling shareholders and are considered Israeli residents to receive favorable tax treatment for
compensation in the form of shares or options. Our non-employee service providers and controlling shareholders may only be granted
options under Section 3(i) of the Ordinance, which does not provide for similar tax benefits.
The 2021 Plan provides for the grant of stock
options (including ISOs and nonqualified stock options), ordinary shares, restricted shares, restricted share units and other share-based
awards. Options granted under the 2021 Plan to our employees who are U.S. residents may qualify as ISOs within the meaning of Section 422
of the Code or may be nonqualified stock options. The exercise price of a stock option may not be less than 100% of the fair market value
of the underlying share on the date of grant (or 110% in the case of ISOs granted to certain significant shareholders).
C. Board
Practices
Corporate Governance Policies
As an Israeli company, we are subject to various
corporate governance requirements under the Companies Law. However, pursuant to regulations promulgated under the Companies Law, companies
with shares traded on certain U.S. stock exchanges, including the Nasdaq Stock Market LLC (“Nasdaq”), may, subject to certain
conditions, opt out from the Companies Law requirements to appoint external directors and related Companies Law rules concerning the composition
of the audit committee, compensation committee and nominating committee of the board of directors (other than the gender diversification
rule under the Companies Law, which requires the appointment of a director from the other gender if at the time a director is appointed
all members of the board of directors are of the same gender). In accordance with these regulations, we have elected to opt out of those
requirements of the Companies Law. These exemptions will continue to be available to us so long as: (i) it does not have a “controlling
shareholder” as used under the Companies Law, (ii) its shares are traded on certain U.S. stock exchanges, including Nasdaq,
and (iii) it complies with the director independence requirements and the audit committee, compensation committee and nominating
committee composition requirements under U.S. laws (including applicable Nasdaq rules) applicable to U.S. domestic issuers.
The term “controlling shareholder”
as used in the Companies Law (including by reference to the term “control” as used in the Israeli Securities Law) for purposes
related to external directors and for the requirements related to appointment to the audit committee, compensation committee or nominating
committee, as described below, means a shareholder with the ability to direct the activities of the company, but excluding a shareholder
whose power derives solely from his or her position as a director of the company or from any other position with the company. A shareholder
is presumed to be a controlling shareholder if the shareholder holds 50% or more of the voting rights in a company or has the right to
appoint the majority of the directors of the company or its general manager. With respect to certain matters (including various related
party transactions), a controlling shareholder is deemed to include a shareholder that holds 25% or more of the voting rights in a public
company if no other shareholder holds more than 50% of the voting rights in the company.
Accordingly, we comply with Nasdaq rule 5605(b)(1),
which requires that the board of directors be comprised of a majority of independent directors. A majority of our board of directors is
composed of directors who are “independent” as defined by the rules of Nasdaq and all of the nonmanagement directors qualify
as “independent” under these standards. The board of directors has established categorical standards to assist it in making
its determination of director independence. We use the definition of “independence” of Nasdaq to make this determination.
We are listed on Nasdaq and Nasdaq Listing Rule 5605(a)(2) provides that an “independent director” is a person other than
an officer or employee of our company or any other individual having a relationship which, in the opinion of the board or directors, would
interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The Nasdaq rules provide that
the following persons shall not be considered independent:
|
• |
a director who is, or at any time during the past three years was, an employee of our company; or |
|
• |
a director who accepted or who has a family member who accepted any compensation from our company in excess of $120,000 during any
period of 12 consecutive months within the three years preceding the independence determination (subject to certain exclusions, including,
among other things, compensation for board or board committee service). |
Provided, however, that in addition to the
requirements contained above, audit committee members are also subject to additional, more stringent independence requirements under the
Nasdaq rules:
|
• |
a director who is a family member of an individual who is, or at any time during the past three years was employed by us as an executive
officer; |
|
• |
a director who is or has a family member who is a partner in, of a controlling shareholder of, or an executive officer of an entity
to which we made, or from which our company received, payments in the current or any of the past three fiscal years that exceed 5% of
the recipient’s consolidated gross revenue for that year or $200,000, whichever is greater (subject to certain exclusions);
|
|
• |
a director of our company who is or has a family member who is employed as an executive officer of another entity where, at any time
during the past three years, any of the executive officers of our company served on the compensation committee of such other entity; or
|
|
• |
a director who is or has a family member who is a current partner of our outside auditor, or at any time during the past three years
was a partner or employee of our outside auditor, and who worked on our audit. |
Under such definitions, we have 6 independent
directors.
The board of directors will assess on a regular
basis, and at least annually, the independence of directors and will make a determination as to which members are independent. References
to “our company” above include any subsidiary in a consolidated group with our company. The terms “immediate family
member” and “executive officer” above are expected to have the same meanings specified for such terms in the Nasdaq
listing standards.
As a foreign private issuer whose shares are
listed on Nasdaq, we are permitted to follow certain home country corporate governance practices instead of certain requirements of the
rules of Nasdaq. Pursuant to the “foreign private issuer exemption”. However, as a foreign private issuer, we are permitted
to comply with Israeli corporate governance practices instead of the Nasdaq corporate governance rules, provided that
it disclose which requirements we are not following and the equivalent Israeli requirement. Pursuant to this “home country practice
exemption” with respect to the following:
|
• |
We follow the quorum requirement for shareholder meetings. As permitted under the Companies Law, pursuant to the Amended and Restated
Articles of Association of Otonomo (the “Otonomo Articles”) the quorum required for an ordinary meeting of shareholders will
consist of at least two shareholders present in person, by proxy or by other voting instrument in accordance with the Companies Law, who
hold at least 25% of the voting power of its shares (and in an adjourned meeting, with some exceptions, any number of shareholders), instead
of 33 1/3% of the issued share capital required under the Nasdaq corporate governance rules. |
|
• |
We intend to adopt and approve material changes to equity incentive plans in accordance with the Companies Law which does not impose
a requirement of shareholder approval for such actions. In addition, we intend to follow Israeli corporate governance practice instead
of the Nasdaq corporate governance rule which requires shareholder approval prior to an issuance of securities in connection with equity-based
compensation of officers, directors, employees, or consultants; and |
|
• |
We follow Israeli corporate governance practice instead of the Nasdaq corporate governance rule requiring shareholder approval for
certain dilutive events (such as issuances that will result in a change of control, certain transactions other than a public offering
involving issuances of a 20% or greater interest in Otonomo and certain acquisitions of the stock or assets of another company).
|
We otherwise comply with the rules generally
applicable to U.S. domestic companies listed on Nasdaq. It may in the future decide to use the foreign private issuer exemption with respect
to some or all of the other corporate governance rules.
Chairperson of the Board
The Otonomo Articles provide that the chairman
of the board is appointed by the members of the board of directors and serves as chairman of the board throughout his term as a director,
unless resolved otherwise by the board of directors. Under the Companies Law, in a public company, the chief executive officer (or any
relative of the chief executive officer) may not serve as the chairman of the board of directors, and the chairman (or any relative of
the chairman) may not be vested with authorities of the chief executive officer without shareholder approval consisting of a majority
vote of the shares present and voting at a shareholders meeting, provided that either:
|
• |
at least a majority of the shares of non-controlling shareholders or shareholders that do not have a personal interest in the approval
voted at the meeting are voted in favor (disregarding abstentions); or |
|
• |
the total number of shares of non-controlling shareholders and shareholders who do not have a personal interest in such appointment
voting against such appointment does not exceed 2% of the aggregate voting rights in the company. |
In addition, a person subordinated, directly
or indirectly, to the chief executive officer may not serve as the chairman of the board of directors; the chairman of the board may not
be vested with authorities that are granted to those subordinated to the chief executive officer; and the chairman of the board may not
serve in any other position in the company or a controlled company, but he may serve as a director or chairman of a subsidiary.
External Directors
Under the Companies Law, companies incorporated
under the laws of the State of Israel that are public companies, including companies with shares listed on Nasdaq, are required to appoint
at least two external directors who must meet heightened independence requirements. Pursuant to regulations promulgated under the Companies
Law, companies with shares traded on certain U.S. stock exchanges, including Nasdaq, may, subject to certain conditions, opt out from
the Companies Law requirements to appoint external directors and related Companies Law rules concerning the composition of the audit committee
and compensation committee of the board of directors. In accordance with these regulations, we have elected to opt out from these Companies
Law requirements. Instead, we must comply with the director independence requirements, the audit committee and the compensation committee
composition requirements under U.S. laws (including applicable Nasdaq rules) applicable to U.S. domestic issuers.
Committees of the Board of Directors
The board of directors will have the following
standing committees: an audit committee, a compensation committee and a nominating committee.
Audit Committee
Under the Companies Law, the board of directors
of a public company must appoint an audit committee (the “Audit Committee”). The Audit Committee is responsible, among its
other duties and responsibilities, for overseeing our accounting and financial reporting processes, audits of financial statements, qualifications
and independence of the independent registered public accounting firm, the effectiveness of internal control over financial reporting
and the performance of the internal audit function and independent registered public accounting firm. The Audit Committee reviews and
assesses the qualitative aspects of our financial reporting, processes to manage business and financial risks, and compliance with significant
applicable legal, ethical and regulatory requirements. The Audit Committee is directly responsible for the appointment, compensation,
retention and oversight of the independent registered public accounting firm. In addition, the Audit Committee is responsible for the
following additional matters pursuant to the Companies Law:
|
• |
recommending to the board of directors the retention and termination of the internal auditor, and the internal auditor’s engagement
fees and terms, in accordance with the Companies Law as well as approving the yearly or periodic work plan proposed by the internal auditor;
|
|
• |
identifying irregularities in our business administration, including by consulting with the internal auditor or with the independent
auditor, and suggesting corrective measures to the board of directors; |
|
• |
reviewing policies and procedures with respect to transactions (other than transactions related to the compensation or terms of services)
between the company and officers and directors, or affiliates of officers or directors, or transactions
that are not in the ordinary course of the Company’s business and deciding whether to approve such acts and transactions if so required
under the Companies Law; and |
|
• |
establishing procedures for the handling of employees’ complaints as to the management of our business and the protection to
be provided to such employees. |
The charter of the Audit Committee is available
without charge at https://investors.otonomo.io.
The members of the Audit Committee are Jonathan
Huberman, Yuval Cohen and Vered Raviv Schwarz. The board of directors designated Jonathan Huberman and Yuval Cohen as “audit committee
financial experts” and determined that each member is “financially literate” under the Nasdaq rules. The board of directors
also determined that each member of the Audit Committee is “independent” as defined under the Nasdaq rules and Exchange Act
rules and regulations.
Compensation Committee
Under the Companies Law, the board of directors
of a public company must appoint a compensation committee (the “Compensation Committee”). The Compensation Committee is responsible,
among its other duties and responsibilities, for reviewing and approving all forms of compensation to be provided to, and employment agreements
with, the executive officers and directors of Otonomo and its subsidiaries, establishing the general compensation policies of our company
and its subsidiaries and reviewing, approving and overseeing the administration of the employee benefits plans of our company and its
subsidiaries. The Compensation Committee is also responsible for:
|
• |
recommending to the board of directors with respect to the approval of the compensation policy for “office holders” (a
term used under the Companies Law, which essentially means directors and executive officers) and, once every three years, regarding any
extensions to a compensation policy that has been in effect for a period of more than three years; |
|
• |
reviewing the implementation of the compensation policy and recommending from time to time to the board of directors with respect
to any amendments or updates of the compensation plan; |
|
• |
resolving whether or not to approve arrangements with respect to the terms of office and employment of office holders; and
|
|
• |
exempting, under certain circumstances, from the requirement of approval by the general meeting of shareholders, transactions with
a candidate to serve as the chief executive officer of our company. |
The charter of the Compensation Committee
is available without charge at https://investors.otonomo.io.
The members of the Compensation Committee
are Benny Schnaider, Amit Karp and Andrew Geisse. The board of directors determined that each member of the Compensation Committee is
“independent” as defined under the Nasdaq listing standards. The Compensation Committee has the authority to retain compensation
consultants, outside counsel and other advisers.
Compensation Policy under
the Companies Law
In general, under the Companies Law, a public
company must have a compensation policy approved by the board of directors after receiving and considering the recommendations of the
compensation committee. In addition, a compensation policy must be approved at least once every three years, first, by the board of directors,
upon recommendation of its compensation committee, and second, by a simple majority of the ordinary shares present, in person or by proxy,
and voting at a shareholders meeting, provided that either:
|
• |
such majority includes at least a majority of the shares held by shareholders who are not controlling shareholders and do not have
a personal interest in such compensation policy and who are present and voting (excluding abstentions); or |
|
• |
the total number of shares of non-controlling shareholders and shareholders who do not have a personal interest in the compensation
policy and who vote against the policy, does not exceed 2% of the company’s aggregate voting rights. |
In the event that, in the future, our shareholders
fail to approve the compensation policy in a duly convened meeting, the board of directors may nevertheless override that decision, provided
that the compensation committee and then the board of directors decide, on the basis of detailed reasons and after further review of the
compensation policy, that approval of the compensation policy is for the benefit of the company despite the failure of the shareholders
to approve the policy.
If a company that adopts a compensation policy
in advance of its initial public offering (or prior to the closing of the Business Combination) describes the policy in its prospectus
for such offering, then that compensation policy shall be deemed validly adopted in accordance with the Companies Law and will remain
in effect for term of five years from the date such company becomes a public company. We have adopted our compensation policy which was
effective as of the closing of the Business Combination, and it is in force for an initial period of five years.
The compensation policy must serve as the
basis for decisions concerning the financial terms of employment or engagement of office holders, including exculpation, insurance, indemnification
or any monetary payment or obligation of payment in respect of employment or engagement. The compensation policy must relate to certain
factors as set forth in the Companies Law, including advancement of the company’s objectives, business plan and long-term strategy,
and creation of appropriate incentives for office holders. It must also consider, among other things, the company’s risk management,
size and the nature of its operations. The compensation policy must furthermore consider the following additional factors:
|
• |
the education, skills, experience, expertise and accomplishments of the relevant office holder: |
|
• |
the office holder’s position, responsibilities and prior compensation agreements with him or her; |
|
• |
the ratio between the cost of the terms of employment of an office holder and the cost of the employment of other employees of the
company, including employees employed through contractors who provide services to the company, in particular the ratio between such cost,
the average and median salary of the employees of the company, as well as the impact of such disparities on the work relationships in
the company; |
|
• |
if the terms of employment include variable components—the possibility of reducing variable components at the discretion of
the board of directors and the possibility of setting a limit on the value of non-cash variable equity-based components; and |
|
• |
if the terms of employment include severance compensation—the term of employment or office of the office holder, the terms
of his or her compensation during such period, the company’s performance during the such period, his or her individual contribution
to the achievement of the company goals and the maximization of its profits and the circumstances under which he or she is leaving the
company. |
The compensation policy must also include,
among other things:
|
• |
with regard to variable components of compensation: |
|
• |
with the exception of office holders who report directly to the chief executive officer, provisions determining the variable components
on the basis of long-term performance and on measurable criteria; however, the company may determine that an immaterial part of the variable
components of the compensation package of an office holder shall be awarded based on non-measurable criteria, if such amount is not higher
than three monthly salaries per annum, while taking into account such office holder’s contribution to the company; and |
|
• |
the ratio between variable and fixed components, as well as the limit on the values of variable components at the time of their grant.
|
|
• |
a condition under which the office holder will return to the company, according to conditions to be set forth in the compensation
policy, any amounts paid as part of his or her terms of employment, if such amounts were paid based on information later to be discovered
to be wrong, and such information was restated in the company’s financial statements; |
|
• |
the minimum holding or vesting period of variable equity‑based components to be set in the terms of office or employment, as
applicable, while taking into consideration long‑term incentives; and |
|
• |
a limit on retirement grants. |
Our compensation policy, which became effective
immediately after the consummation of the Business Combination, is designed to promote retention and motivation of directors and executive
officers, incentivize superior individual excellence, align the interests of our directors and executive officers with our long-term performance
and provide a risk management tool. To that end, a portion of an executive officer compensation package is targeted to reflect our short
and long-term goals, as well as the executive officer’s individual performance. On the other hand, our compensation policy includes
measures designed to reduce the executive officer’s incentives to take excessive risks that may harm us in the long-term, such as
limits on the value of cash bonuses and equity-based compensation, limitations on the ratio between the variable and the total compensation
of an executive officer and minimum vesting periods for equity-based compensation.
The compensation policy also addresses our
executive officers’ individual characteristics (such as their respective positions, education, scope of responsibilities and contribution
to the attainment of its goals) as the basis for compensation variation among our executive officers and considers the internal ratios
between compensation of our executive officers and directors and other employees. Pursuant to our compensation policy, the compensation
that may be granted to an executive officer may include: base salary, annual bonuses and other cash bonuses (such as a signing bonus and
special bonuses with respect to any special achievements, such as outstanding personal achievement, outstanding personal effort or outstanding
company performance), equity-based compensation, benefits and retirement and termination of service arrangements. All cash bonuses are
limited to a maximum amount linked to the executive officer’s base salary. In addition, the total variable compensation components
(cash bonuses and equity-based compensation) may not exceed 125% of each executive officer’s total compensation package with respect
to any given calendar year.
An annual cash bonus may be awarded to executive
officers upon the attainment of pre-set periodic objectives and individual targets. The annual cash bonus that may be granted to our executive
officers other than our chief executive officer will be based on performance objectives and a discretionary evaluation of the executive
officer’s overall performance by the chief executive officer. The annual cash bonus that may be granted to executive officers other
than our chief executive officer may be based entirely on a discretionary evaluation. Furthermore, our chief executive officer is entitled
to recommend performance objectives, and such performance objectives will be approved by the Compensation Committee (and, if required
by law, by our board of directors).
The performance measurable objectives of our
chief executive officer is determined by our Compensation Committee and board of directors. A less significant portion of the chief executive
officer’s annual cash bonus may be based on a discretionary evaluation of the chief executive officer’s overall performance
by the Compensation Committee and the board of directors based on quantitative and qualitative criteria.
The equity-based compensation under the compensation
policy for our executive officers is designed in a manner consistent with the underlying objectives in determining the base salary and
the annual cash bonus. Primary objectives include enhancing the alignment between the executive officers’ interests and our long-term
interests and those of our shareholders and strengthening the retention and the motivation of executive officers in the long term. Our
compensation policy provides for executive officer compensation in the form of share options or other equity-based awards, such as restricted
shares and restricted share units, in accordance with our share incentive plan then in place. All equity-based incentives granted to executive
officers shall be subject to vesting periods in order to promote long-term retention of the awarded executive officers. Equity-based compensation
shall be granted from time to time and be individually determined and awarded according to the performance, educational background, prior
business experience, qualifications, role and the personal responsibilities of the executive officer.
In addition, the compensation policy contains
compensation recovery provisions which allows us under certain conditions to recover bonuses paid in excess, enables our chief executive
officer to approve immaterial changes in the terms of employment of an executive officer (provided that the changes of the terms of employment
are in accordance with our compensation policy) and allows us to exculpate, indemnify and insure our executive officers and directors
subject to certain limitations as set forth therein.
The compensation policy also provides for
compensation to the members of our board of directors either (i) in accordance with the amounts provided in the Companies Regulations
(Rules Regarding the Compensation and Expenses of an External Director) of 2000, as amended by the Companies Regulations (Relief for Public
Companies Traded on Stock Exchanges Outside of Israel) of 2000, as such regulations may be amended from time to time, or (ii) in accordance
with the amounts determined in the compensation policy.
Our compensation policy, which was approved
by our board of directors on April 20, 2021 and by our shareholders on April 26, 2021, respectively, and became effective upon the closing
of the Business Combination.
Nominating Committee
Our nominating committee (the “Nominating
Committee”) consists of Benny Schnaider, Vered Raviv Schwarz and Andrew Geisse, and is responsible, among other things, for:
|
• |
overseeing and assisting its board in reviewing and recommending nominees for election as directors; |
|
• |
assessing the performance of the members of the board; and |
|
• |
establishing and maintaining effective corporate governance policies and practices, including, but not limited to, developing and
recommending to our board of directors a set of corporate governance guidelines applicable to our Company. |
The charter of the Nominating Committee is
available without charge at https://investors.otonomo.io.
Exculpation, insurance
and indemnification of office holders
Under the Companies Law, a company may not
exculpate an office holder from liability for a breach of the duty of loyalty. An Israeli company may exculpate in advance an office holder
from liability to the company, in whole or in part, for damages caused to the company as a result of a breach of duty of care but only
if a provision authorizing such exculpation is included in its articles of association. Otonomo Articles to be effective following the
closing of the Business Combination include such a provision. The company may not exculpate a director from liability arising out of a
prohibited dividend or distribution to shareholders.
Under the Companies Law, a company may indemnify
an office holder in respect of the following liabilities and expenses incurred for acts performed as an office holder, either in advance
of an event or following an event, provided a provision authorizing such indemnification is contained in its articles of association:
|
• |
a financial liability imposed on him or her in favor of another person pursuant to a judgment, including a settlement or arbitrator’s
award approved by a court. However, if an undertaking to indemnify an office holder with respect to such liability is provided in advance,
then such an undertaking must be limited to events which, in the opinion of the board of directors, can be foreseen based on the company’s
activities when the undertaking to indemnify is given, and to an amount or according to criteria determined by the board of directors
as reasonable under the circumstances, and such undertaking shall detail the abovementioned events and amount or criteria; |
|
• |
reasonable litigation expenses, including attorneys’ fees, incurred by the office holder as a result of an investigation or
proceeding instituted against him or her by an authority authorized to conduct such investigation or proceeding, provided that (i) no
indictment was filed against such office holder as a result of such investigation or proceeding; and (ii) no financial liability, such
as a criminal penalty, was imposed upon him or her as a substitute for the criminal proceeding as a result of such investigation or proceeding
or, if such financial liability was imposed, it was imposed with respect to an offense that does not require proof of criminal intent;
and |
|
• |
reasonable litigation expenses, including attorneys’ fees, incurred by the office holder or imposed by a court in proceedings
instituted against him or her by the company, on its behalf or by a third-party or in connection with criminal proceedings in which the
office holder was acquitted or as a result of a conviction for an offense that does not require proof of criminal intent. |
Under the Companies Law and the Israeli Securities
Law, a company may insure an office holder against the following liabilities incurred for acts performed as an office holder if and to
the extent provided in the company’s articles of association:
|
• |
a breach of the duty of loyalty to the company, to the extent that the office holder acted in good faith and had a reasonable basis
to believe that the act would not prejudice the company; |
|
• |
a breach of the duty of care to the company or to a third-party, including a breach arising out of the negligent conduct of the office
holder; |
|
• |
a financial liability imposed on the office holder in favor of a third-party; |
|
• |
a financial liability imposed on the office holder in favor of a third-party harmed by a breach in an administrative proceeding;
and |
|
• |
reasonable litigation expenses, including attorneys’ fees, incurred by the office holder as a result of an administrative proceeding
instituted against him or her. |
Under the Companies Law, a company may not
indemnify, exculpate, or insure an office holder against any of the following:
|
• |
a breach of the duty of loyalty, except to the extent that the office holder acted in good faith and had a reasonable basis to believe
that the act would not prejudice the company; |
|
• |
a breach of the duty of care committed intentionally or recklessly, excluding a breach arising out of the negligent conduct of the
office holder; |
|
• |
an act or omission committed with intent to derive illegal personal benefit; or |
|
• |
a fine or forfeit levied against the office holder. |
Under the Companies Law, exculpation, indemnification,
and insurance of office holders must be approved by the audit committee and the board of directors and, with respect to directors, also
by shareholders.
Otonomo Articles permit to us to exculpate,
indemnify and ensure our office holders for any liability imposed on them as a consequence of an act (including any omission) which was
performed by virtue of being an office holder. The office holders are currently covered by a directors and officers’ liability insurance
policy.
We have entered into agreements with each
of our directors exculpating them, to the fullest extent permitted by law, from liability to us for damages caused to us as a result of
a breach of duty of care and undertaking to indemnify them to the fullest extent permitted by law. This indemnification is limited to
events determined as foreseeable by the board of directors based on our activities, and to an amount or according to criteria determined
by the board of directors as reasonable under the circumstances.
The maximum indemnification amount set forth
in such agreements is limited to an amount equal to the greater of $40,000,000 and 25% of our shareholder’s equity as reflected
in our most recent consolidated financial statements made publicly available prior to the date on which the indemnity payment is made.
The maximum amount set forth in such agreements is in addition to any amount paid (if paid) under insurance and/or by a third-party pursuant
to an indemnification arrangement.
In the opinion of the SEC, indemnification
of directors and office holders for liabilities arising under the Securities Act is against public policy and therefore unenforceable.
There is no pending litigation or proceeding
against any of our office holders as to which indemnification is being sought, nor we aware of any pending or threatened litigation that
may result in claims for indemnification by any office holder.
Internal Auditor
Under the Companies Law, the board of directors
of a public company must appoint an internal auditor based on the recommendation of the audit committee. The role of the internal auditor
is, among other things, to examine whether a company’s actions comply with applicable law and orderly business procedure. Under
the Companies Law, the internal auditor cannot be an interested party or an office holder or a relative of an interested party or an office
holder, nor may the internal auditor be the company’s independent auditor or its representative. An “interested party”
is defined in the Companies Law as: (i) a holder of 5% or more of the issued share capital or voting power in a company, (ii) any person
or entity who has the right to designate one or more directors or to designate the chief executive officer of the company, or (iii) any
person who serves as a director or as a chief executive officer of the company. As of March 8, 2022, Ariel Horowitz, from Kost Forer Gabbay
& Kasierer, a member of Ernst & Young Global, is acting as our internal auditor.
D. Employees
As of December 31, 2021, we had 128 full-time
(or full-time equivalent) employees based primarily in Israel, including 43 employees engaged in research and development, 14 employees
in product development and management, 46 employees in sales and marketing and 25 employees in general management, administration and
finance. We also have 9 employees based in the United States and 3 employees based in Europe. None of our employees are represented by
a labor union, and we consider our relations with our employees to be good. To date, we have not experienced any work stoppages.
E. Share
Ownership
For information regarding the share ownership
of our directors and officers, see Item 7.A. “Major Shareholders and Related Party Transactions—Major
Shareholders.” For information as to our equity incentive plans, see Item 6.B. “Director,
Senior Management and Employees—Compensation—Share Option Plans.”
Item 7. |
Major Shareholders and Related Party Transactions |
A. Major
Shareholders
The following table sets forth information
with respect to the beneficial ownership of our shares as of March 25, 2022by:
|
• |
each person or entity known by us to own beneficially more than 5% of our outstanding shares; |
|
• |
each of our directors and executive officers individually; and |
|
• |
all of our executive officers and directors as a group. |
Unless otherwise indicated, we believe that
all persons named in the table have sole voting and investment power with respect to all shares beneficially owned by them. Except as
otherwise noted herein, the number and percentage of ordinary shares beneficially owned is determined in accordance with Rule 13d-3 of
the Exchange Act, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rule, beneficial
ownership includes any ordinary shares as to which the holder has sole or shared voting power or investment power and also any ordinary
shares which the holder has the right to acquire within 60 days of December 31, 2021 through the exercise of any option, conversion or
any other right. As of December 31, 2021, there were 132,214,733 ordinary shares outstanding.
Unless otherwise noted, the business address
of each beneficial owner is c/o Otonomo Technologies Ltd., 16 Abba Eban Blvd., Herzliya Pituach 467256, Israel.
Name and address of beneficial owner |
|
Number of Ordinary Shares |
|
|
% |
|
Directors and Executive Officers |
|
|
|
|
|
|
Ben Volkow(1) |
|
|
16,503,103 |
|
|
|
12.4 |
% |
Bonnie Moav(2) |
|
|
313,136 |
|
|
|
* |
% |
Anders Truelsen |
|
|
— |
|
|
|
— |
% |
Fred Kohout |
|
|
— |
|
|
|
— |
% |
Shlomi Oren |
|
|
209,614 |
|
|
|
* |
% |
Matan Tessler |
|
|
252,392 |
|
|
|
* |
% |
Hagit Tenner-Pereg |
|
|
130,740 |
|
|
|
* |
% |
Doron Simon |
|
|
13,039 |
|
|
|
* |
% |
Amit Hammer |
|
|
— |
|
|
|
— |
% |
Andrew Geisse(3) |
|
|
4,311,639 |
|
|
|
3.2 |
% |
Amit Karp(4) |
|
|
9,000 |
|
|
|
* |
% |
Yuval Cohen |
|
|
11,295,793 |
|
|
|
8.5 |
% |
Benny Schnaider(5) |
|
|
740,420 |
|
|
|
* |
% |
Vered Raviv Schwarz |
|
|
9,000 |
|
|
|
* |
% |
Jonathan Huberman(6) |
|
|
9,521,500 |
|
|
|
7.2 |
% |
All executive officers and directors as a group (15 persons) |
|
|
43,309,376 |
|
|
|
31.5 |
% |
Five Percent or More Holders |
|
|
|
|
|
|
|
|
Aptiv Financial Services (Luxembourg) S.à.r.l.(7) |
|
|
9,398,274 |
|
|
|
7.1 |
% |
Avner Cohen(8) |
|
|
7,100,074 |
|
|
|
5.3 |
% |
Entities affiliated with Bessemer Venture Partners(9) |
|
|
19,470,539 |
|
|
|
14.6 |
% |
Entities affiliated with Stage One(10) |
|
|
11,295,793 |
|
|
|
8.5 |
% |
Mithaq Capital SPC(11) |
|
|
13,404,308 |
|
|
|
10.1 |
% |
(1) |
Consists of 16,436,604 ordinary shares held directly by Mr. Volkow and 66,499 ordinary shares subject to options and RSUs exercisable
within 60 days of December 31, 2021. |
(2) |
Consists of ordinary shares subject to options and RSUs exercisable within 60 days of December 31, 2021. |
(3) |
Consists of: (a) 1,044,697 ordinary shares held by Andrew M and Jane S Geisse 2000 Trust (Mr. Geisse is affiliated with Andrew M
and Jane S Geisse 2000 Trust and may be deemed to have beneficial ownership with respect to these shares); (b) 3,080,240 ordinary shares
subject to options and RSUs exercisable within 60 days of December 31, 2021; and (c) 177,702 ordinary shares granted to Marla Bay Advisors,
LLC subject to options exercisable within 60 days of December 31, 2021 (Mr. Geisse is affiliated with Marla BayAdvisors, LLC and may be
deemed to have beneficial ownership with respect to these options). Mr. Geisse is an Operating Partner at Bessemer Venture Partners. Mr.
Geisse otherwise disclaims beneficial ownership interest of the securities held by the Bessemer Entities (as defined below) referred to
in footnote (10) below, except to the extent of his pecuniary interest, if any, in such securities. |
(4) |
Mr. Karp is a Partner at Bessemer Venture Partners. Mr. Karp disclaims beneficial ownership interest of the securities held by the
Bessemer Entities (as defined below) referred to in footnote (10) below, except to the extent of his pecuniary interest, if any, in such
securities by virtue of his indirect interest in the Bessemer Entities. |
(5) |
Consists of: (a) 414,990 ordinary shares held by ZAG Trust (Mr. Schnaider is affiliated with ZAG Trust and may be deemed to have
beneficial ownership with respect to these shares); and (b) 325,430 ordinary shares subject to options or RSUs exercisable within 60 days
of December 31, 2021. Mr. Schnaider is a Venture Partner and Investment Committee member at StageOne Ventures. Mr. Schnaider otherwise
disclaims beneficial ownership interest of the securities held by Stage One referred to in footnote (11) below, except to the extent of
his pecuniary interest, if any, in such securities by virtue of his indirect limited partnership interest in Stage One entities.
|
(6) |
Consists of: (a) 5,200,000 ordinary shares underlying warrants exercisable within 60 days of December 31, 2021 held by Software Acquisition
Holdings II LLC, of which Mr. Huberman is a member; (b) 4,312,500 ordinary shares held by Software Acquisition Holdings II LLC, of which
Mr. Huberman is a member; and (c) 9,000 ordinary shares subject to RSUs exercisable within 60 days of December 31, 2021. Mr. Huberman
disclaims any beneficial ownership of the reported securities other than to the extent of any pecuniary interest he may have therein,
directly or indirectly. The business address for Mr. Huberman is 1980 Festival Plaza Drive, Ste. 300, Las Vegas, Nevada 89135. |
(7) |
According to the Schedule 13G filed on February 9, 2022. Aptiv PLC (NYSE: APTV), is the ultimate beneficial owner of Aptiv Financial
Services (Luxembourg) S.à.r.l. The members of the board of directors of Aptiv PLC may be deemed to have shared voting and dispositive
control over the shares. The members of the board of directors of Aptiv PLC are Rajiv L. Gupta, Kevin P. Clark, Richard L. Clemmer, Nancy
E. Cooper, Nicholas M. Donofrio, Joseph L. (Jay) Hooley, Merit E. Janow, Sean O. Mahoney, Paul M. Meister, Robert K. (Kelly) Ortberg,
Colin J. Parris, and Ana G. Pinczuk. The business address of each of the foregoing is 5 Hanover Quay, Grand Canal Dock, Dublin, D02 VY79,
Ireland. |
(8) |
According to the Schedule 13G filed on February 15, 2022 by Avner Cohen. The address for Avner Cohen is 1 Hagalil, Lapid, Israel
7313300. |
(9) |
Consists of (i) 10,810,045 ordinary shares held directly by Bessemer Venture Partners IX L.P., or Bessemer IX, and (ii) 8,660,494
ordinary shares held directly by Bessemer Venture Partners IX Institutional L.P., or Bessemer Institutional, and together with Bessemer
Institutional, the “Bessemer Entities.” The Bessemer Entities are affiliate funds of Bessemer Venture Partners. Deer IX &
Co. L.P., or Deer IX L.P. is the general partner of the Bessemer Entities. Deer IX & Co. Ltd., or Deer IX Ltd. is the general partner
of Deer IX L.P. Robert P. Goodman, David J. Cowan, Jeremy S. Levine, Byron B. Deeter, Robert M. Stavis and Adam Fisher are the directors
of Deer IX Ltd. and hold the voting and dispositive power for the Bessemer Entities. Investment and voting decisions with respect to the
shares held by the Bessemer Entities are made by the directors of Deer IX Ltd. acting as an investment committee. The address for each
of these entities is c/o Bessemer Venture Partners, 1865 Palmer Avenue, Suite 104, Larchmont, New York 10538. |
(10) |
According to the Schedule 13G filed on February 10, 2022 by Stage One Venture Capital Fund II (Israel), L.P. (“Stage One Israel”);
Stage One Venture Capital Fund II (Cayman) L.P. (together with Stage One Israel, the “Funds”); Stage One Capital (GP) II,
L.P. (“Stage One GP”); Stage One II Holdings Ltd.; Tal Slobodkin; and Yuval Cohen. Stage One GP is the general partner of
each of the Funds and Stage One II Holdings Ltd. is the general partner of Stage One GP, and as such may be deemed to be the beneficial
owner of all shares held by the Funds. The controlling persons of Stage One II Holdings Ltd. are Tal Slobodkin and Yuval Cohen and they
may be deemed to have shared voting and dispositive power over the shares. The business address of the entities and persons named herein
is 12 Abba Eban Blvd., Eckerstein Towers, Bldg. D, 3rd Floor, Herzliya Pituach, Israel, 4672530. |
(11) |
According to the Schedule 13G/A filed on March 11, 2022 by Mithaq Capital SPC, Mithaq Capital SPC, Turki Saleh A. AlRajhi and Muhammad
Asif Seemab have shared voting and dispositive power over 13,404,308 ordinary shares. The business address of Mithaq Capital SPC and the
other beneficial owners is Mithaq Capital SPC, c/o Synergy, Anas Ibn Malik Road, Al Malqa, Riyadh 13521 Saudi Arabia. |
To our knowledge, other than as disclosed
in the table above, our other filings with the SEC and this Annual Report, there has been no significant change in the percentage ownership
held by any major shareholder since January 1, 2019. The major shareholders listed above do not have voting rights with respect to
their ordinary shares that are different from the voting rights of other holders of our ordinary shares.
As a number of our shares are held in book-entry
form, we are not aware of the identity of all of our shareholders. As of March 25, 2021, we had 59,041,605 ordinary shares held by 19
U.S. resident shareholders of record.
B. Related
Party Transactions
The following is a description of our related
party transactions since January 1, 2021.
Registration Rights Agreement
In connection with the Business Combination,
certain equityholders of SWAG and certain equityholders of Otonomo entered into a registration rights agreement (the “Registration
Rights Agreement”), pursuant to which Otonomo agreed to file a shelf registration statement with respect to the registrable securities
defined therein within twenty (20) business days of closing of the Business Combination. Pursuant to the Registration Rights Agreement,
certain Otonomo equityholders of registrable securities may collectively request to sell all or any portion of their registrable securities
in an underwritten offering up to four times in any 12-month period and certain former SWAG holders of registrable securities may collectively
request to sell all or any portion of their registrable securities in an underwritten offering up to two times in any 12-month period,
in each case, so long as the total offering price is reasonably expected to exceed $25,000,000; provided, however, that such Otonomo equityholders
and such former SWAG holders may not collectively request more than two underwritten shelf takedowns in any 12-month period. Otonomo also
agreed to provide customary “piggyback” registration rights. The Registration Rights Agreement also provides that Otonomo
will pay certain expenses relating to such registrations and indemnify the shareholders against certain liabilities.
Confidentiality and Lock-Up
Agreement
In connection with the Business Combination,
certain equityholders of Otonomo and certain equityholders of SWAG entered into a confidentiality and lockup agreement (the “Confidentiality
and Lockup Agreement”). Pursuant to the Confidentiality and Lockup Agreement, the shareholder parties thereto agreed that they will
not, (i) in the case of the equityholders of Otonomo listed on Exhibit B to the Confidentiality and Lockup Agreement, during the period
beginning on August 13, 2021 and continuing to and including February 9, 2022, and (ii) in the case of Software Acquisition Holdings II
LLC (the “Sponsor”), the former directors and officers of SWAG and certain members of Otonomo management, during the period
beginning on the Closing Date and continuing to and including the date that is the earlier of (A) August 13, 2022 and (B) if the last
sale price of Otonomo’s ordinary shares equals or exceeds $12.00 per share (as adjusted after the Closing for stock splits, stock
dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least
150 days after August 13, 2021 (in each case, the “Lockup Period”), directly or indirectly, offer, sell, contract to sell,
pledge, grant any option to purchase, make any short sale or otherwise dispose of any shares, or any options or warrants to purchase any
shares or any securities convertible into, exchangeable for or that represent the right to receive shares, or any interest in any of the
foregoing, whether now owned or hereinafter acquired, owned directly by such shareholder (including holding as a custodian) or with respect
to which such shareholder has beneficial ownership within the rules and regulations of the SEC (in each case, subject to certain exceptions
set forth in the Confidentiality and Lockup Agreement).
Rights of Appointment
Pursuant to the Otonomo Articles as in effect
immediately prior to the Business Combination, certain of our shareholders, including related parties, had rights to appoint directors
and observers to its board of directors.
All rights to appoint directors and observers
terminated upon the closing of the Business Combination on August 13, 2021.
Agreements with Officers
Employment
Agreements. We entered into employment agreements with each of our executive
officers, and the terms of each individual’s employment or service, as applicable, were approved by our board of directors. These
agreements provide for notice periods of varying duration for termination of the agreement by us or by the relevant executive officer,
during which time the executive officer will continue to receive base salary and benefits. These agreements also contain customary provisions
regarding noncompetition, confidentiality of information and assignment of inventions. However, the enforceability of the noncompetition
provisions may be limited under applicable law.
Options
and RSUs. Since our inception, we have granted options to purchase ordinary
shares and RSUs to our executive officers and directors.
Exculpation,
indemnification, and insurance. The Otonomo Articles permit it to exculpate,
indemnify and insure certain of its officeholders (as such term is defined under the Companies Law) to the fullest extent permitted by
the Companies Law. We entered into agreements with certain officeholders, exculpating them from a breach of their duty of care to us to
the fullest extent permitted by law and undertaking to indemnify them to the fullest extent permitted by law, subject to certain exceptions,
including with respect to liabilities resulting from the closing of the Business Combination to the extent that these liabilities are
not covered by insurance.
Related Party Transaction
Policy
Our board of directors has adopted a written
related party transaction policy to set forth the policies and procedures for identifying related party transactions.
C. Interests
of Experts and Counsel
Not applicable.
Item 8. |
Financial Information |
A. Consolidated
Statements and Other Financial Information
Consolidated Financial Statements
See Item 18. “Financial
Statements.”
Legal and Arbitration Proceedings
From time to time, we may become involved
in actions, claims, suits, and other legal proceedings arising in the ordinary course of its business, including assertions by third parties
relating to intellectual property infringement, breaches of contract or warranties or employment-related matters. We are not currently
a party to any actions, claims, suits or other legal proceedings the outcome of which, if determined adversely to it, would individually
or in the aggregate have a material adverse effect on our business, financial condition and results of operations.
Dividend Policy
We have never declared or paid any cash dividend
on our ordinary shares. We currently intend to retain any future earnings and do not expect to pay any dividends in the foreseeable future.
Any further determination to pay dividends on our ordinary shares would be at the discretion of our board of directors, subject to applicable
laws, and would depend on our financial condition, results of operations, capital requirements, general business conditions, and other
factors that our board of directors may deem relevant.
Under the Companies Law, dividend distributions
are determined by the board of directors and do not require the approval of the shareholders of a company unless the company’s articles
of association provide otherwise. The Otonomo Articles do not require shareholder approval of a dividend distribution and provide that
dividend distributions may be determined by the board of directors.
Pursuant to the Companies Law, the distribution
amount is limited to the greater of retained earnings or earnings generated over the previous two years, according to the company’s
most recently reviewed or audited financial statements, provided that the end of the period to which the financial statements relate is
not more than six months prior to the date of the distribution. If a company does not meet such criteria, then it may distribute dividends
only with court approval. In each case, we would only be permitted to distribute a dividend if its board of directors and the court, if
applicable, determines that there is no reasonable concern that payment of the dividend will prevent it from satisfying its existing and
foreseeable obligations as they become due.
In the event of our liquidation, after satisfaction
of liabilities to creditors, our assets will be distributed to the holders of our ordinary shares in proportion to their shareholdings.
This right, as well as the right to receive dividends, may be affected by the grant of preferential dividend or distribution rights to
the holders of a class of shares with preferential rights that may be authorized in the future pursuant to the Otonomo Articles
Payment of dividends may be subject to Israeli
withholding taxes. See Item 10.E. “Taxation—Taxation and government programs—Israeli
tax considerations and government programs” for additional information.
B. Significant
Changes
None.
Item 9. |
The Offer and Listing |
A. Offer
and Listing Details
Our ordinary shares and warrants commenced
trading on Nasdaq on August 16, 2021 under the trading symbols “OTMO” and “OTMOW,” respectively. Prior to this,
no public market existed for our ordinary shares or warrants.
B. Plan
of Distribution
Not applicable.
C. Markets
Our ordinary shares and warrants commenced
trading on Nasdaq on August 16, 2021 under the trading symbols “OTMO” and “OTMOW,” respectively. Prior to this,
no public market existed for our ordinary shares or warrants.
D. Selling
Shareholders
Not Applicable.
E. Dilution
Not applicable.
F. Expenses
of the Issue
Not applicable.
Item 10. |
Additional Information |
A. Share
Capital
Not applicable.
B. Memorandum
and Articles of Association
A copy of our Articles is attached as Exhibit
1.1 to this Annual Report. Other than as set forth below, the information called for by this Item is set forth in Exhibit 2.1 to this
Annual Report and is incorporated by reference herein.
Share Capital
As of March 25, 2022, we had 133,006,513 ordinary
shares outstanding and 13,825,000 warrants outstanding
Shareholder meetings
Under Israeli law, we are required to hold
an annual general meeting of our shareholders once every calendar year that must be held no later than 15 months after the date of the
previous annual general meeting. All general meetings other than the annual meeting of shareholders are referred to in Otonomo Articles
as special meetings. Our board of directors may call special meetings whenever it sees fit, at such time and place, within or outside
of Israel, as it may determine. In addition, the Companies Law provides that our board of directors is required to convene a special general
meeting upon the written request of (i) any two of our directors or one-quarter of the members of our board of directors or (ii) one or
more shareholders holding, in the aggregate, either (a) 5% or more of our outstanding issued shares and 1% or more of our outstanding
voting power or (b) 5% or more of our outstanding voting power.
Under Israeli law, one or more shareholders
holding at least 1% of the voting rights at the general meeting may request that the board of directors include a matter in the agenda
of a general meeting to be convened in the future, such as nominating a director candidate, provided that it is appropriate to discuss
such a matter at the general meeting. Otonomo Articles contain procedural guidelines and disclosure items with respect to the submission
of shareholder proposals for shareholders meetings.
Subject to the provisions of the Companies
Law and the regulations promulgated thereunder, shareholders entitled to participate and vote at general meetings are the shareholders
of record on a date to be decided by the board of directors, which may be between four and 40 days prior to the date of the meeting. Furthermore,
the Companies Law requires that resolutions regarding, among other things, the following matters must be passed at a general meeting of
our shareholders:
|
• |
amendments to the Otonomo Articles; |
|
• |
appointment or termination of our auditors; |
|
• |
election of directors, including external directors (unless otherwise determined in Otonomo Articles); |
|
• |
approval of certain related party transactions; |
|
• |
increases or reductions of our authorized share capital; |
|
• |
the exercise of our board of directors’ powers by a general meeting, if our board of directors is unable to exercise its powers
and the exercise of any of its powers is required for our proper management. |
Under the Otonomo Articles, we are not required
to give notice to our registered shareholders pursuant to the Israeli Companies Law, unless otherwise required by law. The Companies Law
requires that a notice of any annual general meeting or special general meeting be provided to shareholders at least 21 days prior to
the meeting and if the agenda of the meeting includes the appointment or removal of directors, the approval of transactions with office
holders or interested or related parties, or an approval of a merger, or as otherwise required under applicable law, notice must be provided
at least 35 days prior to the meeting. Under the Companies Law, shareholders of a public company are not permitted to take action by written
consent in lieu of a meeting. Otonomo Articles provide that a notice of general meeting shall be published by us on the website of (i)
the United States Securities and Exchange Commission, and (ii) us, as a Current Report on Form 6-K or Form 8-K (or such other form prescribed
by the applicable law), at a date prior to the meeting as required by law.
C. Material
Contracts
The following is a summary of each material
contract, other than material contracts entered into in the ordinary course of business, to which we are or have been a party, for the
two years immediately preceding the date of this Annual Report:
|
• |
Agreement and Plan of Merger by and among Otonomo Technologies Ltd. Newton merger sub, Inc. Neura, Inc. and Shareholder Representative
Services LLC, as stockholder representative dated as of October 4, 2021 |
|
• |
Form of Director and Officer Indemnification Agreement (incorporated by reference to Exhibit 10.9 to the Company’s Registration
Statement on Form F-4 (File No. 333-254186) filed with the SEC on May 28, 2021). See “Item 6. Director, Senior Management and Employees—C.
Board Practices—Exculpation, Insurance and Indemnification” for more information about this document. |
|
• |
Compensation Policy for Directors and Officers (incorporated by reference to Exhibit 10.10 to the Company’s Registration Statement
on Form F-4 (File No. 333-254186) filed with the SEC on May 28, 2021). See “Item 6. Director, Senior Management and Employees—B.
Compensation of Directors and Executive Officers” for more information about this document. |
|
• |
2016 Share Award Plan of Otonomo Technologies Ltd (incorporated by reference to Exhibit 10.7 to the Company’s Registration
Statement on Form F-4 (File No. 333-254186) filed with the SEC on May 28, 2021). See “Item 6. Director, Senior Management and Employees—B.
Compensation of Directors and Executive Officers—Share Option Plans” for more information about this document. |
|
• |
2021 Share Incentive Plan of Otonomo Technologies Ltd (incorporated by reference to Exhibit 10.8 to the Company’s Registration
Statement on Form F-4 (File No. 333-254186) filed with the SEC on May 28, 2021). See “Item 6. Director, Senior Management and Employees—B.
Compensation of Directors and Executive Officers—Share Option Plans” for more information about this document. |
|
• |
Form of Option Award Agreement under the 2021 Otonomo Technologies Ltd.’s Equity Incentive Plan (incorporated by reference
to Exhibit 10.11 to the Company’s Registration Statement on Form F-4 (File No. 333-254186) filed with the SEC on May 28, 2021).
See “Item 6. Director, Senior Management and Employees—B. Compensation of Directors and Executive Officers—Share Option
Plans” for more information about this document. |
|
• |
Form of Restricted Stock Unit Agreement under the 2021 Otonomo Technologies Ltd.’s Equity Incentive Plan (incorporated by reference
to Exhibit 10.12 to the Company’s Registration Statement on Form F-4 (File No. 333-254186) filed with the SEC on May 28, 2021).
See “Item 6. Director, Senior Management and Employees—B. Compensation of Directors and Executive Officers—Share Option
Plans” for more information about this document. |
|
• |
Warrant Agreement, dated as of September 14, 2020, between Continental Stock Transfer & Trust Company and Software Acquisition
Group Inc. II (incorporated by reference to Exhibit 4.4 to the Company’s Registration Statement on Form F-4 (File No. 333-254186)
filed with the SEC on March 12, 2021). See Exhibit 2.1 for more information about this document. |
|
• |
Amended and Restated Warrant Agreement, dated as of August 13, 2021, by and among Software Acquisition Group Inc. II, Otonomo Technologies
Ltd., Continental Stock Transfer & Trust Company and American Stock Transfer & Trust Company (incorporated by reference to Exhibit
4.2 to the Company’s Registration Statement on Form F-1 (File No. 333-259144) filed with the SEC on August 30, 2021). See Exhibit
2.1 for more information about this document. |
|
• |
Registration Rights Agreement, dated as of January 31, 2021, by and among Otonomo Technologies Ltd., certain equityholders of Otonomo
Technologies Ltd. and certain equityholders of Software Acquisition Group Inc. II (incorporated by reference to Exhibit 4.10 to the Company’s
Registration Statement on Form F-4 (File No. 333-254186) filed with the SEC on March 12, 2021). See “Item 7. Major Shareholders
and Related Party Transactions—B. Related Party Transactions” for more information about this document. |
|
• |
Confidentiality and Lockup Agreement, dated as of January 31, 2021, by and among Otonomo, certain equityholders and members of management
of Otonomo and certain equityholders of Software Acquisition Group Inc. II (incorporated by reference to Exhibit 10.5 to the Company’s
Registration Statement on Form F-4 (File No. 333-254186) filed with the SEC on March 12, 2021). See “Item 7. Major Shareholders
and Related Party Transactions—B. Related Party Transactions” for more information about this document. |
D. Exchange
Controls
There are currently no Israeli currency control
restrictions on remittances of dividends on our ordinary shares, proceeds from the sale of the shares or interest or other payments to
non-residents of Israel, except for shareholders who are subjects of certain countries that are, or have been, in a state of war with
Israel at such time.
E. Taxation
Certain Material Israeli Tax Considerations
and Government Programs
The
following description is not intended to constitute a complete analysis
of all tax consequences relating to the acquisition, ownership, and disposition of the ordinary shares. You should consult your own tax
advisor concerning the tax consequences of your particular situation, as well as any tax consequences that may arise under the laws of
any state, local, foreign or other taxing jurisdiction.
Israeli Tax Considerations
The following is a brief summary of certain
material Israeli tax laws applicable to Otonomo, and certain Israeli Government programs that benefit Otonomo. This section also contains
a discussion of certain material Israeli tax consequences concerning the ownership and disposition of ordinary shares purchased by investors.
This summary does not discuss all the aspects of Israeli tax law that may be relevant to a particular investor in light of his or her
personal investment circumstances or to some types of investors subject to special treatment under Israeli law. Examples of such investors
include residents of Israel or traders in securities who are subject to special tax regimes not covered in this discussion. To the extent
that the discussion is based on tax legislation that has not yet been subject to judicial or administrative interpretation, Otonomo cannot
assure you that the appropriate tax authorities or the courts will accept the views expressed in this discussion. The discussion below
is not intended, and should not be construed, as legal or professional tax advice and is not exhaustive of all possible tax considerations.
The discussion is subject to change, including due to amendments under Israeli law or changes to the applicable judicial or administrative
interpretations of Israeli law, which change could affect the tax consequences described below, possibly with a retroactive effect.
THEREFORE, YOU ARE URGED
TO CONSULT YOUR OWN TAX ADVISORS AS TO THE ISRAELI OR OTHER TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF OUR ORDINARY
SHARES, INCLUDING, IN PARTICULAR, THE EFFECT OF ANY FOREIGN, STATE OR LOCAL TAXES.
General corporate tax structure in Israel
Israeli companies are generally subject to
corporate tax at a flat rate. In December 2016, the Israeli Parliament approved the Economic Efficiency Law (Legislative Amendments for
Applying the Economic Policy for the 2017 and 2018 Budget Years) which reduced the corporate income tax rate from 25% to 24% effective
from January 1, 2017, and to 23% effective from January 1, 2018 and thereafter. However, the effective tax rate payable by a company that
derives income from an Approved Enterprise, a Preferred Enterprise, a Benefited Enterprise or a Technological Enterprise (each, as defined
herein) may be considerably less. Capital gains derived by an Israeli company are generally subject to the corporate tax rate.
Law for the Encouragement of Industry (Taxes),
5729-1969
The Law for the Encouragement of Industry
(Taxes), 5729-1969, generally referred to as the Industry Encouragement Law, provides several tax benefits for “Industrial Companies.”
Otonomo may qualify as an Industrial Company within the meaning of the Industry Encouragement Law.
The Industry Encouragement Law defines an
“Industrial Company” as an Israeli resident-company, of which 90% or more of its income in any tax year, other than income
from certain government loans, capital gains, interest and dividends, is derived from an “Industrial Enterprise” owned by
it and located in Israel or in the “Area,” in accordance with the definition under section 3A of the Israeli Income Tax Ordinance
(New Version) 1961 (the “Ordinance”). An “Industrial Enterprise” is defined as an enterprise whose principal activity
in a given tax year is industrial production.
The following are the main tax benefits available
to Industrial Companies:
|
• |
Amortization of the cost of purchased patent, rights to use a patent, and know-how, which are used for the development or advancement
of the Industrial Enterprise, over an eight-year period, commencing on the year in which such rights were first exercised; |
|
• |
Under limited conditions, an election to file consolidated tax returns with controlled Israeli Industrial Companies; |
|
• |
Expenses related to a public offering are deductible in equal amounts over three years commencing on the year of the offering.
|
Eligibility for benefits under the Industry
Encouragement Law is not contingent upon approval of any governmental authority.
Tax benefits and grants for research and development
Israeli tax law allows, under certain conditions,
a tax deduction for expenditures, including capital expenditures, for the year in which they are incurred. Expenditures are deemed related
to scientific research and development projects, if:
|
• |
The expenditures are approved by the relevant Israeli government ministry, determined by the field of research; |
|
• |
The research and development must be for the promotion of the company; and |
|
• |
The research and development is carried out by or on behalf of the company seeking such tax deduction. |
The amount of such deductible expenses is
reduced by the sum of any funds received through government grants for the finance of such scientific research and development projects.
No deduction under these research and development deduction rules is allowed if such deduction is related to an expense invested in an
asset depreciable under the general depreciation rules of the Ordinance. Expenditures that are unqualified under the conditions above
are deductible in equal amounts over three years.
From time to time we may apply to the Israel
Innovation Authority for approval to allow a tax deduction for all or most of the research and development expenses during the year in
which they were incurred. There can be no assurance that such application will be accepted. If we are not able to deduct research and
development expenses during the year in which they are paid, we may be able to deduct research and development expenses in equal amounts
over a period of three years commencing the year in which the payment of such expenses was made.
Law for the Encouragement of Capital Investments,
5719-1959
The Law for the Encouragement of Capital Investments,
5719-1959, generally referred to as the Investment Law, provides certain incentives for capital investments in production facilities (or
other eligible assets). Generally, an investment program that is implemented in accordance with the provisions of the Investment Law,
referred to as an Approved Enterprise, a Beneficiary Enterprise, a Preferred Enterprise, a Preferred Technological Enterprise, or a Special
Preferred Technological Enterprise, is entitled to the benefits discussed below. These benefits may include cash grants from the Israeli
government and tax benefits, based upon, among other things, the geographic location in Israel of the facility in which the investment
is made. In order to qualify for these incentives, the Company is required to comply with the requirements of the Investment Law.
The Investment Law was significantly amended
effective as of April 1, 2005 (the “2005 Amendment”), as of January 1, 2011 (the “2011 Amendment”) and as of January
1, 2017 (the “2017 Amendment”). Pursuant to the 2005 Amendment, tax benefits granted in accordance with the provisions of
the Investment Law prior to its revision by the 2005 Amendment remain in force but any benefits granted subsequently are subject to the
provisions of the amended Investment Law. Similarly, the 2011 Amendment introduced new benefits to replace those granted in accordance
with the provisions of the Investment Law in effect prior to the 2011 Amendment. However, companies entitled to benefits under the Investment
Law as in effect prior to January 1, 2011 were entitled to choose to continue to enjoy such benefits, provided that certain conditions
are met, or elect instead, irrevocably, to forego such benefits and have the benefits of the 2011 Amendment apply. The 2017 Amendment
introduces new benefits for Technological Enterprises, alongside the existing tax benefits.
Tax benefits under the
2011 Amendment
The 2011 Amendment canceled the availability
of the benefits granted to Industrial Companies under the Investment Law prior to 2011 and, instead, introduced new benefits for income
generated by a “Preferred Company” through its “Preferred Enterprise” (as such terms are defined in the Investment
Law) as of January 1, 2011. The definition of a Preferred Company includes a company incorporated in Israel that is not fully owned by
a governmental entity, and that has, among other things, Preferred Enterprise status and is controlled and managed from Israel. Pursuant
to the 2011 Amendment, a Preferred Company is entitled to a reduced corporate tax rate of 15% with respect to its income derived by its
Preferred Enterprise in 2011 and 2012, unless the Preferred Enterprise is located in a specified development zone, in which case the rate
will be 10%. Under the 2011 Amendment, such corporate tax rate was reduced from 15% and 10%, respectively, to 12.5% and 7%, respectively,
in 2013, 16% and 9% respectively, in 2014, 2015 and 2016, and 16% and 7.5%, respectively, in 2017 and thereafter. Income derived by a
Preferred Company from a “Special Preferred Enterprise” (as such term is defined in the Investment Law) would be entitled,
subject to certain conditions and during a benefits period of 10 years, to further reduced tax rates of 8%, or 5% if the Special Preferred
Enterprise is located in a certain development zone.
Dividends distributed from income which is
attributed to a “Preferred Enterprise” will be subject to tax at the following rates: (i) Israeli resident corporations–0%
(although, if such dividends are subsequently distributed to individuals or a non-Israeli company the below rates detailed in sub sections
(ii) and (iii) shall apply) (ii) Israeli resident individuals–20% (iii) non-Israeli residents (individuals and corporations)–20%,
subject to a reduced tax rate under the provisions of any applicable double tax treaty. The withholding tax rate applicable to distribution
of dividend from such income to non-Israeli residents is 25% (or 30% if distributed to a “substantial shareholder” at the
time of the sale or at any time during the preceding twelve months period, as defined below), which may be reduced by applying in advance
for a withholding certificate from the Israel Tax Authority. A “substantial shareholder” is generally a person who alone or
together with such person’s relative or another person who collaborates with such person on a permanent basis, holds, directly or
indirectly, at least 10% of any of the “Means of Control” of the corporation. “Means of control” generally include
the right to vote, receive profits, nominate a director or an executive officer, receive assets upon liquidation, or order someone who
holds any of the aforesaid rights how to act, regardless of the source of such right.
The 2011 Amendment also provided transitional
provisions to address companies already enjoying existing tax benefits under the Investment Law. These transitional provisions provide,
among other things, that unless an irrevocable request is made to apply the provisions of the Investment Law as amended in 2011 with respect
to income to be derived as of January 1, 2011, a Beneficiary Enterprise can elect to continue to benefit from the benefits provided to
it before the 2011 Amendment came into effect, provided that certain conditions are met.
New tax benefits under the 2017 Amendment
that became effective on January 1, 2017
The 2017 Amendment was enacted as part of
the Economic Efficiency Law that was published on December 29, 2016 and is effective as of January 1, 2017. The 2017 Amendment provides
new tax benefits for two types of “Technological Enterprises,” as described below, and is in addition to the other existing
tax beneficial programs under the Investment Law.
The 2017 Amendment provides that a Preferred
Company satisfying certain conditions will qualify as having a “Preferred Technological Enterprise” and will thereby enjoy
a reduced corporate tax rate of 12% on income that qualifies as “Preferred Technological Income,” as defined in the Investment
Law. The corporate tax rate is further reduced to 7.5% with respect to a Preferred Technological Enterprise located in development zone
“A.” In addition, a Preferred Technological Company will enjoy a reduced corporate tax rate of 12% on capital gain derived
from the sale of certain “Benefitted Intangible Assets” (as defined in the Investment Law) to a related foreign company if
the Benefitted Intangible Assets were acquired from a foreign company on or after January 1, 2017 for at least NIS 200 million, and the
sale receives prior approval from the Israel Innovation Authority.
The 2017 Amendment further provides that a
Preferred Company satisfying certain conditions (including group consolidated revenues of at least NIS 10 billion) will qualify as a “Special
Preferred Technological Enterprise” and will thereby enjoy a reduced corporate tax rate of 6% on “Preferred Technological
Income” regardless of the company’s geographic location within Israel. In addition, a Special Preferred Technological Enterprise
will enjoy a reduced corporate tax rate of 6% on capital gain derived from the sale of certain “Benefitted Intangible Assets”
to a related foreign company if the Benefitted Intangible Assets were either developed by the Special Preferred Enterprise or acquired
from a foreign company on or after January 1, 2017, and the sale received prior approval from the Israel Innovation Authority. A Special
Preferred Technological Enterprise that acquires Benefitted Intangible Assets from a foreign company for more than NIS 500 million will
be eligible for these benefits for at least ten years, subject to certain approvals as specified in the Investment Law.
Dividends distributed by a Preferred Technological
Enterprise or a Special Preferred Technological Enterprise, paid out of Preferred Technological Income, are generally subject to tax at
the rate of 20% or such lower rate as may be provided in an applicable tax treaty. The withholding tax rate applicable to distribution
of dividend from such income to non-Israeli residents is 25% (or 30% if distributed to a “substantial shareholder” at the
time of the sale or at any time during the preceding twelve months period), which may be reduced by applying in advance for a withholding
certificate from the Israel Tax Authority. In addition, if such dividends are distributed to a foreign company that holds solely or together
with other foreign companies 90% or more in the Israeli company and other conditions are met, the withholding tax rate will be 4% (subject
to the receipt in advance of a valid certificate from the Israel Tax Authority allowing for a reduced tax rate). However, if such dividends
are paid to an Israeli company, no tax is required to be withheld.
Otonomo believes that it may be eligible to
the tax benefits under the 2017 Amendment. This should be further examined when relevant.
Taxation of our shareholders
Capital Gains Tax on Sales
of our Ordinary Shares
Israeli law generally imposes a capital gains
tax on the sale of any capital assets by Israeli residents, as defined for Israeli tax purposes, and on the sale of capital assets located
in Israel, including shares of Israeli companies, by both Israeli residents and non-Israeli residents, unless a specific exemption is
available or unless a tax treaty between Israel and the shareholder’s country of residence provides otherwise. The Ordinance distinguishes
between real gain and inflationary surplus. The inflationary surplus is a portion of the total capital gain equivalent to the increase
of the relevant asset’s purchase price attributable to an increase in the Israeli consumer price index, or a foreign currency exchange
rate, between the date of purchase and the date of sale. Inflationary surplus is currently not subject to tax in Israel. The real gain
is the excess of the total capital gain over the inflationary surplus.
Capital gains taxes applicable to non-Israeli
resident shareholders.
A non-Israeli resident who derives capital
gains from the sale of shares in an Israeli resident company that were purchased after the company was listed for trading on a stock exchange
outside of Israel, will be exempt from Israeli tax if, among other conditions, the shares were not held through a permanent establishment
that the non-resident maintains in Israel. However, non-Israeli corporations will not be entitled to the foregoing exemption if Israeli
residents: (i) have a controlling interest more than 25% in such non-Israeli corporation or (ii) are the beneficiaries of, or are entitled
to, 25% or more of the revenues or profits of such non-Israeli corporation, whether directly or indirectly. In addition, such exemption
is not applicable to a person whose gains from selling or otherwise disposing of the shares are deemed to be business income.
Additionally, a sale of securities by a non-Israeli
resident may be exempt from Israeli capital gains tax under the provisions of an applicable tax treaty. For example, under the Convention
Between the Government of the United States of America and the Government of the State of Israel with respect to Taxes on Income, as amended
(the “United States Israel Tax Treaty”), the sale, exchange or other disposition of shares by a shareholder who is a United
States resident (for purposes of the treaty) holding the shares as a capital asset and is entitled to claim the benefits afforded to such
a resident by the U.S. Israel Tax Treaty (a “U.S. Resident”) is generally exempt from Israeli capital gains tax unless: (i)
the capital gain arising from such sale, exchange or disposition is attributed to real estate located in Israel; (ii) the capital gain
arising from such sale, exchange or disposition is attributed to royalties; (iii) the capital gain arising from the such sale, exchange
or disposition is attributed to a permanent establishment in Israel, under certain terms; (iv) such U.S. Resident holds, directly or indirectly,
shares representing 10% or more of the voting capital during any part of the 12 month period preceding the disposition, subject to certain
conditions; or (v) such U.S. Resident is an individual and was present in Israel for 183 days or more during the relevant taxable year.
In any such case, the sale, exchange or disposition of such shares by the U.S. Resident would be subject to Israeli tax (unless exempt
under the Israeli domestic law as described above). Under the United States Israel Tax Treaty, the gain may be treated as foreign source
income for United States foreign tax credit purposes, upon an election by the U.S. Resident, and such U.S. Resident may be permitted to
claim a credit for such taxes against the United States federal income tax imposed on such sale, subject to the limitations under the
United States federal income tax laws applicable to foreign tax credits. The United States Israel Tax Treaty does not provide such credit
against any United States state or local taxes.
Regardless of whether shareholders may be
liable for Israeli tax on the sale of our ordinary shares, the payment of the consideration may be subject to the withholding of Israeli
tax at source. Shareholders may be required to demonstrate that they are exempt from tax on their capital gains in order to avoid withholding
at source at the time of sale (i.e., provide resident certificate and other documentation).
Capital gains taxes applicable
to Israeli resident shareholders.
An Israeli resident corporation who derives
capital gains from the sale of shares in an Israeli resident company that were purchased after the company was listed for trading on a
stock exchange outside of Israel will generally be subject to tax on the real capital gains generated on such sale at the corporate tax
rate (currently of 23%). An Israeli resident individual will generally be subject to capital gain tax at the rate of 25%. However, if
the individual shareholder is claiming deduction of interest expenditures or he is a “substantial shareholder” at the time
of the sale or at any time during the preceding twelve months period, such gain will be taxed at the rate of 30%. Individual holders dealing
in securities in Israel for whom the income from the sale of securities is considered “business income” as defined in section
2(1) of the Ordinance are taxed at the marginal tax rates applicable to business income (up to 47% in 2021 plus 3% Surtax). Certain Israeli
institutions who are exempt from tax under section 9(2) or section 129(C)(a)(1) of the Ordinance (such as exempt trust funds and pension
funds) may be exempt from capital gains tax from the sale of the shares.
Taxation of Israeli shareholders
on receipt of dividends.
An Israeli resident individual is generally
subject to Israeli income tax on the receipt of dividends paid on our ordinary shares at the rate of 25%. With respect to a person who
is a “substantial shareholder” at the time of receiving the dividend or on any time during the preceding twelve months, the
applicable tax rate is 30%. Such dividends are generally subject to Israeli withholding tax at a rate of 25% if the shares are registered
with a nominee company (whether the recipient is a substantial shareholder or not). If the recipient of the dividend is an Israeli resident
corporation such dividend income will be exempt from tax provided the income from which such dividend is distributed was derived or accrued
within Israel and was received directly or indirectly from another corporation that is liable to Israeli corporate tax. An exempt trust
fund, pension fund or other entity that is exempt from tax under section 9(2) or section 129C(a)(1) of the Ordinance is exempt from tax
on dividend.
Dividend distribution by a Preferred Technology
Enterprise or a Special Preferred Technology Enterprise is subject to beneficial withholding tax rates. For a further discussion, see
“Certain Material Israeli Tax Considerations—Law for the Encouragement of Capital Investments, 5719-1959—New tax benefits
under the 2017 Amendment that became effective on January 1, 2017.”
Taxation of non-Israeli
shareholders on receipt of dividends.
Non-Israeli residents (either individuals
or corporations) are generally subject to Israeli income tax on the receipt of dividends paid on our ordinary shares at the rate of 25%,
which tax will be withheld at source, unless relief is provided in a treaty between Israel and the shareholder’s country of residence.
With respect to a person who is a “substantial shareholder” at the time of receiving the dividend or on any time during the
preceding twelve months, the applicable tax rate is 30%. Such dividends are generally subject to Israeli withholding tax at a rate of
25% if the shares are registered with a nominee company (whether the recipient is a substantial shareholder or not), unless a reduced
rate is provided under an applicable tax treaty (subject to the receipt in advance of a valid certificate from the Israel Tax Authority
allowing for a reduced tax rate). For example, under the United States Israel Tax Treaty, the maximum rate of tax withheld at source in
Israel on dividends paid to a holder of our ordinary shares who is a U.S. Resident is 25%. However, generally, the maximum rate of withholding
tax on dividends, not generated by a Preferred Enterprise, Approved Enterprise or Beneficial Enterprise, that are paid to a United States
corporation holding 10% or more of the outstanding voting capital throughout the tax year in which the dividend is distributed as well
as during the previous tax year, is 12.5%, provided that not more than 25% of the gross income for such preceding year consists of certain
types of dividends and interest. Notwithstanding the foregoing, dividends distributed from income attributed to an Approved Enterprise,
Benefited Enterprise or Preferred Enterprise are not entitled to such reduction under the tax treaty but are subject to a withholding
tax rate of 15% for a shareholder that is a U.S. corporation, provided that the conditions related to the outstanding voting rights and
the gross income for the previous year (as set forth in the previous sentences) are met. If the dividend is attributable partly to income
derived from an Approved Enterprise, Benefited Enterprise or Preferred Enterprise, and partly to other sources of income, the withholding
rate will be a blended rate reflecting the relative portions of the two types of income. We cannot assure you that we will designate the
profits that we may distribute in a way that will reduce shareholders’ tax liability. Application for the reduced tax rate requires
appropriate documentation presented and specific instruction received from the Israeli Tax Authorities to the extent tax is withheld at
source at the maximum rates (see above), a qualified tax treaty recipient will have to comply with some administrative procedures with
the Israeli Tax Authorities in order to receive back the excess tax withheld.
A foreign resident who had income from a dividend
that was accrued from Israeli source, from which the full tax was deducted, will be exempt from filing a tax return in Israel, unless
he is liable to additional Surtax (see below) in accordance with section 121B of the Ordinance.
Dividend distribution by a Preferred Technology
Enterprise or a Special Preferred Technology Enterprise is subject to beneficial withholding tax rates. For a further discussion, see
“Certain Material Israeli Tax Considerations—Law for the Encouragement of Capital Investments, 5719-1959—New tax benefits
under the 2017 Amendment that became effective on January 1, 2017.”
Surtax
Subject to the provisions of an applicable
tax treaty, individuals who are subject to tax in Israel are also subject to an additional tax at a rate of 3% on annual income (including,
but not limited to, dividends, interest and capital gain) exceeding NIS 647,640 for 2021, which amount is linked to the annual change
in the Israeli consumer price index.
Estate and Gift Tax
Israeli law presently does not impose estate
or gift taxes.
United States Federal
Income Taxation
The following is a description of the material
U.S. federal income tax consequences of the acquisition, ownership and disposition of our ordinary shares and warrants. This description
addresses only the U.S. federal income tax consequences to U.S. Holders (as defined below) that hold our ordinary shares or warrants as
capital assets within the meaning of Section 1221 of the Code, and that have the U.S. dollar as their functional currency. This discussion
is based upon the Code, applicable U.S. Treasury regulations, administrative pronouncements and judicial decisions, in each case as in
effect on the date hereof, all of which are subject to change (possibly with retroactive effect). No ruling has been or will be requested
from the IRS regarding the tax consequences of the acquisition, ownership or disposition of the ordinary shares and warrants, and there
can be no assurance that the IRS will agree with the discussion set out below. This summary does not address any U.S. tax consequences
other than U.S. federal income tax consequences (e.g., the estate and gift tax or the Medicare tax on net investment income) and does
not address any state, local or non‑U.S. tax consequences.
This description does not address tax considerations
applicable to holders that may be subject to special tax rules, including, without limitation:
|
• |
banks, financial institutions or insurance companies; |
|
• |
real estate investment trusts or regulated investment companies; |
|
• |
traders that elect to mark to market; |
|
• |
tax exempt entities or organizations; |
|
• |
“individual retirement accounts” and other tax deferred accounts; |
|
• |
certain former citizens or long term residents of the United States; |
|
• |
persons that are resident or ordinarily resident in or have a permanent establishment in a jurisdiction outside the United States;
|
|
• |
persons that acquired our ordinary shares pursuant to the exercise of any employee share option or otherwise as compensation for
the performance of services; |
|
• |
persons holding our ordinary shares or warrants as part of a “hedging,” “integrated” or “conversion”
transaction or as a position in a “straddle” for U.S. federal income tax purposes; |
|
• |
partnerships or other pass through entities and persons holding ordinary shares or warrants through partnerships or other pass through
entities; or |
|
• |
holders that own directly, indirectly or through attribution 10% or more of the total voting power or value of all of our outstanding
shares. |
For purposes of this description, a “U.S.
Holder” is a beneficial owner of our ordinary shares or warrants that, for U.S. federal income tax purposes, is:
|
• |
an individual who is a citizen or resident of the United States; |
|
• |
a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the
laws of the United States or any state thereof, including the District of Columbia; |
|
• |
an estate the income of which is subject to U.S. federal income taxation regardless of its source; or |
|
• |
a trust if such trust has validly elected to be treated as a United States person for U.S. federal income tax purposes or if (1) a
court within the United States is able to exercise primary supervision over its administration and (2) one or more United States
persons have the authority to control all of the substantial decisions of such trust. |
If a partnership (or any other entity or arrangement
treated as a partnership for U.S. federal income tax purposes) holds our ordinary shares or warrants, the tax treatment of a partner in
such partnership will generally depend on the status of the partner and the activities of the partnership. Such a partner or partnership
should consult its tax advisor as to the particular U.S. federal income tax consequences of acquiring, owning and disposing of our ordinary
shares or warrants in its particular circumstance.
You should consult your tax advisor with respect
to the U.S. federal, state, local and foreign tax consequences of acquiring, owning and disposing of our ordinary shares and warrants.
Distributions on Ordinary
Shares
If we make distributions of cash or property
on the ordinary shares, the gross amount of such distributions (including any amount of foreign taxes withheld) will be treated for U.S.
federal income tax purposes first as a dividend to the extent of our current and accumulated earnings and profits (as determined for U.S.
federal income tax purposes), and then as a tax-free return of capital to the extent of the U.S. Holder’s tax basis, with
any excess treated as capital gain from the sale or exchange of the shares. If we do not provide calculations of our earnings and profits
under U.S. federal income tax principles, a U.S. Holder should expect all cash distributions to be reported as dividends for U.S. federal
income tax purposes. Any dividend will not be eligible for the dividends received deduction allowed to corporations in respect of dividends
received from U.S. corporations.
Subject to the discussion below under “—Passive
Foreign Investment Company Rules,” dividends received by certain non-corporate U.S. Holders (including individuals)
may be “qualified dividend income,” which is taxed at the lower applicable capital gains rate, provided that:
|
• |
either (a) the shares are readily tradable on an established securities market in the United States, or (b) we are eligible
for the benefits of a qualifying income tax treaty with the United States that includes an exchange of information program; |
|
• |
we are neither a PFIC (as discussed below under below under “—Passive Foreign Investment
Company Rules”) nor treated as such with respect to the U.S. Holder for the taxable year in which the dividend is paid or
the preceding taxable year; |
|
• |
the U.S. Holder satisfies certain holding period requirements; and |
|
• |
the U.S. Holder is not under an obligation to make related payments with respect to positions in substantially similar or related
property. |
There can be no assurances that we will be
eligible for benefits of an applicable comprehensive income tax treaty between the United States and Israel. In addition, there also can
be no assurance that the ordinary shares will be considered “readily tradable” on an established securities market in the
United States in accordance with applicable legal authorities. Furthermore, we will not constitute a “qualified foreign corporation”
for purposes of these rules if we are a PFIC for the taxable year in which we pay a dividend or for the preceding taxable year. See “—Passive
Foreign Investment Company Rules.” U.S. Holders should consult their own tax advisors regarding the availability of the lower
rate for dividends paid with respect to the ordinary shares. Subject to certain exceptions, dividends on the ordinary shares will constitute
foreign source income for foreign tax credit limitation purposes. If such dividends are qualified dividend income (as discussed above),
the amount of the dividend taken into account for purposes of calculating the foreign tax credit limitation will be limited to the gross
amount of the dividend, multiplied by a fraction, the numerator of which is the reduced rate applicable to qualified dividend income and
the denominator of which is the highest rate of tax normally applicable to dividends. The limitation on foreign taxes eligible for credit
is calculated separately with respect to specific classes of income. For this purpose, dividends distributed by us with respect to the
ordinary shares generally will constitute “passive category income” but could, in the case of certain U.S. Holders, constitute
“general category income.”
Sale, Exchange, Redemption
or Other Taxable Disposition of Ordinary Shares and Warrants.
Subject to the discussion below under “—Passive
Foreign Investment Company Rules,” a U.S. Holder generally will recognize gain or loss on any sale, exchange, redemption
or other taxable disposition of ordinary shares or warrants in an amount equal to the difference between (i) the amount realized
on the disposition and (ii) such U.S. Holder’s adjusted tax basis in such ordinary shares and/or warrants. Any gain or loss
recognized by a U.S. Holder on a taxable disposition of ordinary shares or warrants generally will be capital gain or loss. A non-corporate U.S.
Holder, including an individual, who has held the ordinary shares and/or warrants for more than one year generally will be eligible for
reduced tax rates for such long-term capital gains. The deductibility of capital losses is subject to limitations.
Any such gain or loss recognized generally
will be treated as U.S. source gain or loss. Accordingly, in the event any Israeli tax (including withholding tax) is imposed upon such
sale or other disposition, a U.S. Holder may not be able to utilize foreign tax credits unless such U.S. Holder has foreign source income
or gain in the same category from other sources. Moreover, there are special rules under the income tax treaty between the United States
and Israel (the “Treaty”), which may impact a U.S. Holder’s ability
to claim a foreign tax credit. U.S. Holders are urged to consult their own tax advisor regarding the ability to claim a foreign tax credit
and the application of the Treaty to such U.S. Holder’s particular circumstances.
Exercise or Lapse of a
Warrant
Except as discussed below with respect to
the cashless exercise of a warrant, a U.S. Holder generally will not recognize gain or loss upon the acquisition of an ordinary share
on the exercise of a warrant for cash. A U.S. Holder’s tax basis in ordinary shares received upon exercise of the warrant generally
should be an amount equal to the sum of the U.S. Holder’s tax basis in the warrant received therefore and the exercise price. The
U.S. Holder’s holding period for an ordinary share received upon exercise of the warrant will begin on the date following the date
of exercise (or possibly the date of exercise) of the warrant and will not include the period during which the U.S. Holder held the warrant.
If a warrant is allowed to lapse unexercised, a U.S. Holder that has otherwise received no proceeds with respect to such warrant
generally will recognize a capital loss equal to such U.S. Holder’s tax basis in the warrant.
The tax consequences of a cashless exercise
of a warrant are not clear under current U.S. federal income tax law. A cashless exercise may be tax-deferred, either because
the exercise is not a realization event or because the exercise is treated as a recapitalization for U.S. federal income tax purposes.
In either situation, a U.S. Holder’s basis in the ordinary shares received would equal the U.S. Holder’s basis in the
warrants exercised therefore. If the cashless exercise is not treated as a realization event, a U.S. Holder’s holding period in
the ordinary shares would be treated as commencing on the date following the date of exercise (or possibly the date of exercise) of the
warrants. If the cashless exercise were treated as a recapitalization, the holding period of the ordinary shares would include the holding
period of the warrants exercised therefore.
It is also possible
that a cashless exercise of a warrant could be treated in part as a taxable exchange in which gain or loss would be recognized in the
manner set forth above under “—Sale, Exchange, Redemption or Other Taxable Disposition of Ordinary Shares and Warrants.”
In such event, a U.S. Holder could be deemed to have surrendered warrants equal to the number of ordinary shares having an aggregate fair
market value equal to the exercise price for the total number of warrants to be exercised. The U.S. Holder would recognize capital gain
or loss in an amount generally equal to the difference between (i) the fair market value of the warrants deemed surrendered and (ii) the
U.S. Holder’s tax basis in such warrants deemed surrendered. In this case, a U.S. Holder’s tax basis in the ordinary shares
received would equal the sum of (i) U.S. Holder’s tax basis in the warrants deemed exercised and (ii) the exercise price
of such warrants. A U.S. Holder’s holding period for the ordinary shares received in such case generally would commence on
the date following the date of exercise (or possibly the date of exercise) of the warrants.
Due to the absence of authority on the U.S.
federal income tax treatment of a cashless exercise of warrants, there can be no assurance which, if any, of the alternative tax consequences
and holding periods described above would be adopted by the IRS or a court of law. Accordingly, U.S. Holders should consult their own
tax advisors regarding the tax consequences of a cashless exercise of warrants.
Possible Constructive
Distributions
The terms of each warrant provide for an adjustment
to the number of ordinary shares for which the warrant may be exercised or to the exercise price of the warrant in certain events. An
adjustment which has the effect of preventing dilution generally is not taxable. A U.S. Holder of a warrant would, however, be treated
as receiving a constructive distribution from us if, for example, the adjustment increases the holder’s proportionate interest in
our assets or earnings and profits (for instance, through an increase in the number of ordinary shares that would be obtained upon exercise
of such warrant) as a result of a distribution of cash or other property such as other securities to the holders of the ordinary shares
which is taxable to the U.S. Holders of such shares as described under “—Distributions on Ordinary Shares” above. Such
constructive distribution would be subject to tax as described under that section in the same manner as if the U.S. Holder of such warrant
received a cash distribution from us equal to the fair market value of such increased interest.
Passive Foreign Investment
Company Rules
The treatment of U.S. Holders of the ordinary
shares could be materially different from that described above, if we are treated as a PFIC for U.S. federal income tax purposes. A non-U.S. entity
treated as a corporation for U.S. federal income tax purposes generally will be a PFIC for U.S. federal income tax purposes for any taxable
year if either:
|
• |
at least 75% of its gross income for such year is passive income; or |
|
• |
at least 50% of the value of its assets (generally based on an average of the quarterly values of the assets) during such year is
attributable to assets that produce passive income or are held for the production of passive income. |
For this purpose, we will be treated as owning
our proportionate share of the assets and earning our proportionate share of the income of any other entity treated as a corporation for
U.S. federal income tax purposes in which we owns, directly or indirectly, 25% or more (by value) of the stock.
We do not believe we were a PFIC for our taxable
year ending December 31, 2021, and based on the current and anticipated composition of the income, assets and operations of us and our
subsidiaries, we do not believe we will be treated as a PFIC for our current taxable year. However, there can be no assurances in this
regard, nor can there be any assurances that we will not be treated as a PFIC in any future taxable year. Moreover, the application of
the PFIC rules is subject to uncertainty in several respects, and we can make no assurances that the IRS will not take a contrary position
or that a court will not sustain such a challenge by the IRS.
Whether we are or any of our subsidiaries
is treated as a PFIC is determined on an annual basis. The determination of whether we are or any of our subsidiaries is a PFIC is a factual
determination that depends on, among other things, the composition of our income and assets, and the market value of our and our subsidiaries’
shares and assets. Changes in the composition of our or any of our subsidiaries’ income or composition
of our or any of our subsidiaries’ assets may cause us to be or become a PFIC for the current or subsequent taxable years. Under
the PFIC rules, if we were considered a PFIC at any time that a U.S. Holder owns ordinary shares or warrants, we would continue to be
treated as a PFIC with respect to such investment unless (i) we ceased to be a PFIC and (ii) the U.S. Holder made a “deemed
sale” election under the PFIC rules. If such election is made, a U.S. Holder will be deemed to have sold its ordinary shares or
warrants at their fair market value on the last day of the last taxable year in which we are classified as a PFIC, and any gain from such
deemed sale would be subject to the consequences described below. After the deemed sale election, the ordinary shares or warrants with
respect to which the deemed sale election was made will not be treated as shares in a PFIC unless we subsequently become a PFIC.
For each taxable year that we are treated
as a PFIC with respect to a U.S. Holder’s ordinary shares or warrants, the U.S. Holder will be subject to special tax rules with
respect to any “excess distribution” (as defined below) received and any gain realized from a sale or disposition (including
a pledge) of its ordinary shares (collectively the “Excess Distribution Rules”),
unless the U.S. Holder makes a valid QEF election or mark-to-market election as discussed below. Distributions received by a
U.S. Holder in a taxable year that are greater than 125% of the average annual distributions received during the shorter of the three
preceding taxable years or the U.S. Holder’s holding period for the ordinary shares will be treated as excess distributions. Under
these special tax rules:
|
• |
the excess distribution or gain will be allocated ratably over the U.S. Holder’s holding period for the ordinary shares;
|
|
• |
the amount allocated to the current taxable year, and any taxable years in the U.S. Holder’s holding period prior to the first
taxable year in which we are a PFIC, will be treated as ordinary income; and |
|
• |
the amount allocated to each other taxable year will be subject to the highest tax rate in effect for individuals or corporations,
as applicable, for each such year and the interest charge generally applicable to underpayments of tax will be imposed on the resulting
tax attributable to each such year. |
Under the Excess Distribution Rules,
the tax liability for amounts allocated to taxable years prior to the year of disposition or excess distribution cannot be offset by any
net operating losses, and gains (but not losses) realized on the sale of the ordinary shares or warrants cannot be treated as capital
gains, even though the U.S. Holder holds the ordinary shares or warrants as capital assets.
Certain of the PFIC rules may impact U.S.
Holders with respect to equity interests in subsidiaries and other entities which we may hold, directly or indirectly, that are PFICs
(collectively, “Lower-Tier PFICs”). There can be no assurance, however, that
we do not own, or will not in the future acquire, an interest in a subsidiary or other entity that is or would be treated as a Lower-Tier
PFIC. U.S. Holders should consult their own tax advisors regarding the application of the PFIC rules to any of our subsidiaries.
If we are a PFIC, a U.S. Holder of ordinary
shares (but not warrants) may avoid taxation under the Excess Distribution Rules described above by making a “qualified electing
fund” (“QEF”) election. However, a U.S. Holder may make a QEF election
with respect to its ordinary shares only if we provide U.S. Holders on an annual basis with certain financial information specified under
applicable U.S. Treasury regulations. We will endeavor to provide U.S. Holders with the required information on an annual basis to allow
U.S. Holders to make a QEF election with respect to the ordinary shares in the event we are treated as a PFIC for any taxable year. There
can be no assurance, however, that we will timely provide such information for the current year or subsequent years. The failure to provide
such information on an annual basis could prevent a U.S. Holder from making a QEF election or result in the invalidation or termination
of a U.S. Holder’s prior QEF election. In addition, U.S. Holders of warrants will not be able to make a QEF election with respect
to their warrants.
In the event we are a PFIC, a U.S. Holder
that makes a QEF election with respect to its ordinary shares would generally be required to include in income for each year that we are
treated as a PFIC the U.S. Holder’s pro rata share of our ordinary earnings for the year (which would be subject to tax as ordinary
income) and net capital gains for the year (which would be subject to tax at the rates applicable to long-term capital gains), without
regard to the amount of any distributions made in respect of the ordinary shares. Any net deficits or net capital losses of ours for a
taxable year would not be passed through and included on the tax return of the U.S. Holder, however. A U.S. Holder’s basis in the
ordinary shares would be increased by the amount of income inclusions under the qualified electing fund rules. Dividends actually paid
on the ordinary shares generally would not be subject to U.S. federal income tax to the extent of prior income inclusions and would reduce
the U.S. Holder’s basis in the ordinary shares by a corresponding amount.
If we own any interests in a Lower-Tier PFIC,
a U.S. Holder generally must make a separate QEF election for each Lower-Tier PFIC, subject to us providing the relevant tax information
for each Lower-Tier PFIC on an annual basis.
If a U.S. Holder does not make a QEF election
(or a mark-to-market election, as discussed below) effective from the first taxable year of a U.S. Holder’s holding period for the
ordinary shares in which we are a PFIC, then the ordinary shares will generally continue to be treated as an interest in a PFIC, and the
U.S. Holder generally will remain subject to the Excess Distribution Rules. A U.S. Holder that first makes a QEF election in a later year
may avoid the continued application of the Excess Distribution Rules to its ordinary shares by making a “deemed sale” election.
In that case, the U.S. Holder will be deemed to have sold the ordinary shares at their fair market value on the first day of the taxable
year in which the QEF election becomes effective, and any gain from such deemed sale would be subject to the Excess Distribution Rules
described above. A U.S. Holder that is eligible to make a QEF election with respect to its ordinary shares generally may do so by providing
the appropriate information to the IRS in the U.S. Holder’s timely filed tax return for the year in which the election becomes effective.
U.S. Holders should consult their own tax
advisors as to the availability and desirability of a QEF election.
Alternatively, a U.S. Holder of “marketable
stock” (as defined below) may make a mark-to-market election for its ordinary shares to elect out of the Excess Distribution
Rules discussed above if we are treated as a PFIC. If a U.S. Holder makes a mark-to-market election with respect to its ordinary
shares, such U.S. Holder will include in income for each year that we are treated as a PFIC with respect to such ordinary shares an amount
equal to the excess, if any, of the fair market value of the ordinary shares as of the close of the U.S. Holder’s taxable year over
the adjusted basis in the ordinary shares. A U.S. Holder will be allowed a deduction for the excess, if any, of the adjusted basis of
the ordinary shares over their fair market value as of the close of the taxable year. However, deductions will be allowed only to the
extent of any net mark-to-market gains on the ordinary shares included in the U.S. Holder’s income for prior taxable years.
Amounts included in income under a mark-to-market election, as well as gain on the actual sale or other disposition of the ordinary
shares, will be treated as ordinary income. Ordinary loss treatment will also apply to the deductible portion of any mark-to-market loss
on the ordinary shares, as well as to any loss realized on the actual sale or disposition of the ordinary shares, to the extent the amount
of such loss does not exceed the net mark-to-market gains for such ordinary shares previously included in income. A U.S. Holder’s
basis in the ordinary shares will be adjusted to reflect any mark-to-market income or loss. If a U.S. Holder makes a mark-to-market election,
any distributions we make would generally be subject to the rules discussed above under “ —Distributions
on Ordinary Shares,” except the lower rates applicable to qualified dividend
income would not apply. U.S. Holders of warrants will not be able to make a mark-to-market election with respect to
their warrants.
The mark-to-market election is available
only for “marketable stock,” which is stock that is regularly traded on a qualified exchange or other market, as defined in
applicable U.S. Treasury regulations. The ordinary shares, which are currently listed on Nasdaq, are expected to qualify as marketable
stock for purposes of the PFIC rules, but there can be no assurance that the ordinary shares will be “regularly traded” for
purposes of these rules. Because a mark-to-market election cannot be made for equity interests in any Lower-Tier PFICs, a U.S.
Holder that does not make the applicable QEF elections generally will continue to be subject to the Excess Distribution Rules with respect
to its indirect interest in any Lower-Tier PFICs as described above, even if a mark-to-market election is made for us.
If a U.S. Holder does not make a mark-to-market election
(or a QEF election, as discussed above) effective from the first taxable year of a U.S. Holder’s holding period for the ordinary
shares in which we are a PFIC, then the U.S. Holder generally will remain subject to the Excess Distribution Rules. A U.S. Holder that
first makes a mark-to-market election with respect to the ordinary shares in a later year will continue to be subject to the
Excess Distribution Rules during the taxable year for which the mark-to-market election becomes effective, including with respect
to any mark-to-market gain recognized at the end of that year. In subsequent years for which a valid mark-to-mark election
remains in effect, the Excess Distribution Rules generally will not apply. A U.S. Holder that is eligible to make a mark-to-market with
respect to its ordinary shares may do so by providing the appropriate information on IRS Form 8621 and timely filing that form with the
U.S. Holder’s tax return for the year in which the election becomes effective. U.S. Holders should consult their own tax advisors
as to the availability and desirability of a mark-to-market election, as well as the impact of such election on interests in
any Lower-Tier PFICs.
A U.S. Holder of a PFIC may be required to
file an IRS Form 8621 on an annual basis. U.S. Holders should consult their own tax advisors regarding any reporting requirements that
may apply to them if we are a PFIC.
U.S. Holders are strongly encouraged to consult
their tax advisors regarding the application of the PFIC rules to their particular circumstances.
Information Reporting
and Backup Withholding
Information reporting requirements may apply
to dividends received by U.S. Holders of ordinary shares and the proceeds received on sale or other taxable disposition of ordinary shares
or warrants effected within the United States (and, in certain cases, outside the United States), in each case other than U.S. Holders
that are exempt recipients (such as corporations). Backup withholding (currently at a rate of 24%) may apply to such amounts if the U.S.
Holder fails to provide an accurate taxpayer identification number (generally on an IRS Form W-9 provided to the paying agent
of the U.S. Holder’s broker) or is otherwise subject to backup withholding. U.S. Holders should consult their own tax advisors regarding
the application of the U.S. information reporting and backup withholding rules.
Backup withholding is not an additional tax.
Amounts withheld as backup withholding generally may be credited against the taxpayer’s U.S. federal income tax liability, and a
taxpayer may obtain a refund of any excess amounts withheld under the backup withholding rules by timely filing the appropriate claim
for a refund with the IRS and furnishing any required information.
F. Dividends
and Paying Agents
Not applicable.
G. Statement
by Experts
Not applicable.
H. Documents
on Display
We are subject to the informational requirements
of the Exchange Act. Accordingly, we are required to file reports and other information with the SEC, including annual reports on Form
20‑F and reports on Form 6‑K.
As a foreign private issuer, we are exempt
under the Exchange Act from, among other things, the rules prescribing the furnishing and content of proxy statements, and our officers,
directors and principal shareholders are exempt from the reporting and short swing profit recovery provisions contained in Section 16
of the Exchange Act. In addition, we are not required under the Exchange Act to file periodic reports and financial statements with the
SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act. We are required to make certain
filings with the SEC. The SEC maintains an internet website that contains reports, proxy statements and other information about issuers,
like us, that file electronically with the SEC. The address of that site is www.sec.gov.
Our ordinary shares and warrants are quoted
on Nasdaq. Information about us is also available on our website at https://www.otonomo.io. Our website and the information contained
therein or connected thereto will not be deemed to be incorporated into this annual report and you should not rely on any such information
in making your decision whether to purchase our ordinary shares or warrants.
I. Subsidiary
Information
Not applicable.
Item 11. |
Quantitative and Qualitative Disclosures About Market Risk |
Quantitative and Qualitative Disclosures about
Market Risk
We are exposed to market risk in the ordinary
course of its business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial
market prices and rates. Our market risk exposure is primarily the result of fluctuations in interest rates and foreign currency exchange
rates.
Interest Rate Risk
As of December 31, 2021, we had approximately
$207.8 million of cash, cash equivalents, restricted cash and short-term investments in an ILS and US linked deposit. In addition, we
had approximately $0.2 million of restricted cash primarily due to outstanding letters of credit established in connection with lease
agreements for our facilities and to secure our credit card obligations. Our cash, cash equivalents, and short-term and long-term investments
are held for working capital purposes. We do not enter into investments for trading or speculative purposes. We do not believe a 10% increase
or decrease in the relative value of the U.S. dollar would have a material impact on our operating results.
Foreign Currency Exchange
Risk
Our reporting currency and the functional
currency of our wholly owned foreign subsidiaries is the U.S. dollar. Our sales are currently denominated in U.S. dollars and Euros, and
therefore our Euro dominated revenue is currently subject to significant foreign currency risk. Our operating expenses are denominated
in the currencies of the countries in which our operations are located, which are primarily in Israel, USA and Germany, Our consolidated
results of operations and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates and may
be adversely affected in the future due to changes in foreign exchange rates. To date, we have not entered any hedging arrangements with
respect to foreign currency risk or other derivative financial instruments, although it may choose to do so in the future. We do not believe
a 10% increase or decrease in the relative value of the U.S. dollar would have a material impact on our operating results.
Item 12. |
Description of Securities Other than Equity Securities |
Not applicable.
PART II
Item 13. |
Defaults, Dividend Arrearages and Delinquencies |
None.
Item 14. |
Material Modifications to the Rights of Security Holders and Use of Proceeds |
None.
Item 15. |
Controls and Procedures |
Evaluation of Disclosure
Controls and Procedures
We maintain disclosure controls and procedures
(as that term is defined in Rules 13a‑15(e) and 15d‑15(e) under the Securities Exchange Act of 1934, as amended (“Exchange
Act”)) that are designed to ensure that information required to be disclosed in the Company’s reports under the Exchange Act
is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information
is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate,
to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide
only reasonable assurance of achieving the desired control objectives. Our management, with the participation of our Chief Executive Officer
and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as
of December 31, 2021. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as
of December 31, 2021, our disclosure controls and procedures were effective to accomplish their objectives at the reasonable assurance
level.
Management’s Annual
Report on Internal Control over Financial Reporting
This Annual Report does not include a report
of management’s assessment regarding internal control over financial reporting due to a transition period established by rules of
the SEC for newly public companies.
Attestation Report of
the Registered Public Accounting Firm
This Annual Report does not include an attestation
report of our registered public accounting firm due to a transition period established by rules of the SEC for newly public companies.
In addition, we are an emerging growth company and, accordingly, are exempt from the requirement to provide such a report.
Changes in Internal Control
over Financial Reporting
There were no changes in our internal controls
over financial reporting (as such term is defined in Rules 13a‑15(f) and 15d‑15(f) under the Securities Exchange Act) that
occurred during the period covered by this Annual Report that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
Item 16.
[Reserved]
Item 16A.
Audit Committee Financial Expert
Our board of directors has determined that
Jonathan Huberman and Yuval Cohen satisfy the “independence” requirements set forth in Rule 10A 3 under the Exchange Act.
Our board of directors has also determined that Jonathan Huberman and Yuval Cohen is each considered an “audit committee financial
expert” as defined in Item 16A of Form 20 F under the Exchange Act..
Item 16B.
Code of Ethics
We have adopted a Code of Ethics and Conduct
that applies to all our employees, officers and directors, including our principal executive, principal financial and principal accounting
officers. Our Code of Ethics and Conduct addresses, among other things, competition and fair dealing, conflicts of interest, financial
matters and external reporting, company funds and assets, confidentiality and corporate opportunity requirements and the process for reporting
violations of the Code of Ethics and Conduct, employee misconduct, conflicts of interest or other violations. Our Code of Ethics and Conduct
is intended to meet the definition of “code of ethics” under Item 16B of 20‑F under the Exchange Act.
We will disclose on our website any amendment
to, or waiver from, a provision of our Code of Ethics and Conduct that applies to our directors or executive officers to the extent required
under the rules of the SEC or Nasdaq. Our Code of Ethics and Conduct is available on our website at www.investors.otonomo.io. The information
contained on or through our website, or any other website referred to herein, is not incorporated by reference in this Annual Report.
You may request a copy of our Code of Ethics and Conduct, free of charge, by writing to us at the following address: investors@otonomo.io.
Item 16C.
Principal Accounting Fees and Services
The
consolidated financial statements of Otonomo Technologies Ltd. at December 31, 2021 and 2020, and for each of the two years in the
period ended December 31, 2021, appearing in this Annual Report have been audited by Somekh Chaikin,Tel Aviv, Israel (PCAOB
ID 1057), a member firm of KPMG International, independent registered public accounting
firm, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority
of such firm as experts in accounting and auditing. The current address of Somekh Chaikin is 17 Ha'arba'a Street, Tel Aviv, 64739, Israel.
The
table below sets out the total amount of services rendered to us by Somekh Chaikin, a member firm of KPMG International, for services
performed in the years ended December 31, 2021 and 2020, and breaks down these amounts by category of service:
|
|
2021 |
|
|
2020 |
|
|
|
(in thousands) |
|
Audit Fees |
|
$ |
365 |
|
|
$ |
530 |
|
Audit Related Fees |
|
|
33 |
|
|
|
- |
|
Tax Fees |
|
|
219 |
|
|
|
25 |
|
All Other Fees |
|
|
- |
|
|
|
- |
|
Total |
|
$ |
617 |
|
|
$ |
555 |
|
Audit Fees
Audit fees for the years ended December 31,
2021 and 2020 include the aggregate fees paid by us for the audit of our annual financial statements. This category also includes services
that the independent accountant generally provides, such as consents and assistance with and review of documents filed with the SEC.
Audit Related Fees
Audit related fees for the year ended December 31, 2021 are the aggregate fees paid for due diligence matters
pertaining to business combinations.
Tax Fees
Tax fees for the years ended December 31,
2021 and 2020 are the aggregate fees paid for tax consultation and tax compliance services during the respected period.
Pre‑Approval Policies
and Procedures
The advance approval of the Audit Committee
or members thereof, to whom approval authority has been delegated, is required for all audit and non‑audit services provided by
our auditors.
All services provided by our auditors are
approved in advance by either the Audit Committee or members thereof, to whom authority has been delegated, in accordance with the Audit
Committee’s pre‑approval policy.
Item 16D.
Exemptions from the Listing Standards for Audit Committees
Not applicable.
Item 16E.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
Item 16F.
Change in Registrant’s Certifying Accountant
None.
Item 16G.
Corporate Governance
We are a “foreign private issuer”
(as such term is defined in Rule 3b‑4 under the Exchange Act) and our ordinary shares are listed on Nasdaq. We believe the following
to be the significant differences between our corporate governance practices and those applicable to U.S. companies under Nasdaq listing
standards. Under Nasdaq rules, listed companies that are foreign private issuers are permitted to follow home country practice in lieu
of the corporate governance provisions specified by Nasdaq with limited exceptions. We rely on this “home country practice exemption”
with respect to the quorum requirement for shareholder meetings. As permitted under the Companies Law, pursuant to our Articles, the quorum
required for an ordinary meeting of shareholders consists of at least two shareholders present in person, by proxy or by other voting
instrument in accordance with the Companies Law, who hold at least 25% of the voting power of our shares (and in an adjourned meeting,
with some exceptions, any number of shareholders), instead of 33 1/3% of the issued share capital required under Nasdaq corporate governance
rules.
We follow Israeli corporate governance practice
instead of the Nasdaq corporate governance rule which requires shareholder approval prior to an issuance of securities in connection with
equity-based compensation of officers, directors, employees, or consultants. We also follow Israeli corporate governance practice instead
of the Nasdaq corporate governance rule requiring shareholder approval for certain dilutive events (such as issuances that will result
in a change of control, certain transactions other than a public offering involving issuances of a 20% or greater interest in Otonomo
and certain acquisitions of the stock or assets of another company).
We otherwise comply with and intend to continue
to comply with the rules generally applicable to U.S. domestic companies listed on Nasdaq. We may in the future, however, decide
to use other foreign private issuer exemptions with respect to some or all of the other Nasdaq listing rules. Following our home country
governance practices may provide less protection than is accorded to investors under Nasdaq listing rules applicable to domestic issuers.
Item 16H.
Mine Safety Disclosure
Not applicable.
PART III
Item 17. |
Financial Statements |
We have provided financial statements pursuant
to Item 18.
Item 18. |
Financial Statements |
The audited consolidated financial statements
as required under Item 18 are attached hereto starting on page F-1 of this Annual Report. The audit report of Somekh Chaikin, a member
firm of KPMG International, independent registered public accounting firm, is included herein preceding the audited consolidated financial
statements.
List all exhibits filed as part of the registration
statement or annual report, including exhibits incorporated by reference.
|
|
|
|
Incorporation by Reference |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F‑1 |
|
333-259144 |
|
10.9 |
|
August 30, 2021 |
|
|
|
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
F‑4 |
|
333-254186 |
|
10.9 |
|
May 28, 2021 |
|
|
|
|
|
|
F‑4 |
|
333-254186 |
|
10.10 |
|
May 28, 2021 |
|
|
|
|
|
|
F‑4 |
|
333-254186 |
|
10.7 |
|
May 28, 2021 |
|
|
|
|
|
|
F‑4 |
|
333-254186 |
|
10.8 |
|
May 28, 2021 |
|
|
|
|
|
|
F‑4 |
|
333-254186 |
|
10.11 |
|
May 28, 2021 |
|
|
|
|
|
|
F‑4 |
|
333-254186 |
|
10.12 |
|
May 28, 2021 |
|
|
|
|
|
|
F-4 |
|
333-254186 |
|
4.4 |
|
March 12, 2021 |
|
|
|
|
|
|
F-1 |
|
333-259144 |
|
4.2 |
|
August 30, 2021 |
|
|
|
|
|
|
F-4 |
|
333-254186 |
|
4.10 |
|
March 12, 2021 |
|
|
|
|
|
|
F‑4 |
|
333-254186 |
|
10.5 |
|
May 28, 2021 |
|
|
|
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
** |
|
|
|
|
|
|
|
|
|
|
|
|
** |
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
|
|
|
|
|
|
|
101.INS |
|
XBRL Instance Document. |
|
* |
|
|
|
|
|
|
|
|
101.SCH |
|
XBRL Taxonomy Extension Schema Document.
|
|
* |
|
|
|
|
|
|
|
|
101.CAL |
|
XBRL Taxonomy Extension Calculation Linkbase
Document. |
|
* |
|
|
|
|
|
|
|
|
101.DEF |
|
XBRL Taxonomy Definition Linkbase Document.
|
|
* |
|
|
|
|
|
|
|
|
101.LAB |
|
XBRL Taxonomy Extension Label Linkbase
Document. |
|
* |
|
|
|
|
|
|
|
|
101.PRE |
|
XBRL Taxonomy Extension Presentation Linkbase
Document |
|
* |
|
|
|
|
|
|
|
|
† |
Indicates management contract or compensatory plan or arrangement. |
†† |
Certain confidential portions (indicated by brackets and asterisks) have been omitted from this exhibit. |
Certain agreements filed as exhibits to this
Annual Report contain representations and warranties that the parties thereto made to each other. These representations and warranties
have been made solely for the benefit of the other parties to such agreements and may have been qualified by certain information that
has been disclosed to the other parties to such agreements and that may not be reflected in such agreements. In addition, these representations
and warranties may be intended as a way of allocating risks among parties if the statements contained therein prove to be incorrect, rather
than as actual statements of fact. Accordingly, there can be no reliance on any such representations and warranties as characterizations
of the actual state of facts. Moreover, information concerning the subject matter of any such representations and warranties may have
changed since the date of such agreements.
SIGNATURES
The registrant hereby certifies that it meets
all of the requirements for filing on Form 20‑F and that it has duly caused and authorized the undersigned to sign this annual report
on its behalf.
|
OTONOMO TECHNOLOGIES LTD. |
|
|
|
Date: March 31, 2022 |
By: |
|
|
Name: |
Ben Volkow |
|
Title: |
Chief Executive Officer |